What is Novation Agreement?
A novation is a three-party contract that replaces the original buyer (the wholesaler) with a new buyer (the end investor), with the seller's explicit consent. Used as an alternative to assignment in states with restrictive wholesale-assignment laws.
In a novation, the original purchase agreement is essentially canceled and a new agreement is created between the seller and the end buyer — with the wholesaler stepping out completely. The wholesaler is compensated for facilitating the deal via a separate consulting/finder agreement.
Novations work where assignments don't — in states like Illinois, Oklahoma, and Pennsylvania that have passed wholesale-assignment disclosure laws or that classify unlicensed assignments as illegal brokering, novation provides a workaround that doesn't involve transferring the purchase contract.
Documentation must be carefully structured — the consulting agreement needs to demonstrate independent value beyond just the assignment fee, or it risks being recharacterized as an assignment by regulators or courts. Always work with an attorney experienced in the specific state's wholesale laws.
Concepts that connect.
Wholesaling is the real-estate strategy of putting a distressed property under purchase contract and assigning that contract to a cash buyer for a fee. The wholesaler never owns the property — they're paid for connecting motivated sellers to investor buyers.
An assignment fee is the amount a wholesaler is paid for assigning the rights of a real estate purchase contract to an end buyer. Typical fees in 2026 range from $5,000 to $25,000 on single-family deals, depending on the spread and the market.
A double close (also called a simultaneous close) is a wholesaling exit where the wholesaler actually buys the property from the seller and immediately resells to the end buyer in two back-to-back transactions. Used when an assignment isn't allowed or when the wholesaler wants to hide their margin.
The Weekly Deal Memo
One market memo, one off-market playbook, one tool review. Every Friday. Free.
No spam. Unsubscribe anytime.