A lot of wholesalers only know one exit strategy.
Get the house under contract.
Blast it to the buyers list.
Assign it for a fee.
Move on to the next one.
And don’t get me wrong, wholesaling is still my bread and butter. It’s simple, scalable, and extremely profitable when you get good at it.
But not every deal is a clean wholesale assignment.
Some deals are just a little too tight for a cash buyer. The house might be in decent shape, the seller may want more than a flipper can comfortably pay, and the numbers don’t leave enough spread for a normal assignment. In those cases, a lot of wholesalers just kill the deal and move on.
That’s where novations can become a very powerful option.
We’ve used novations on deals that would not move as standard wholesale deals, and in some cases they turned into some of our best paydays.
In this post, I want to break down the difference between wholesale vs novation, when each one makes sense, how to pitch a novation to a seller, and what paperwork and process you need to have in place to do it the right way.
Jump to any section of the article using the quick links below.
- What Is a Wholesale Deal?
- What Is a Novation?
- When a Wholesale Exit Makes More Sense
- When a Novation Makes More Sense
- The Biggest Mistake People Make With Novations
- Pitching Novations to a Seller
- Process Flow and Paperwork for a Novation Deal
- The Inspection Period and Repairs
- Final Thoughts on Wholesale vs Novation
What Is a Wholesale Deal?
When comparing wholesale vs novation, this is the strategy most investors start with.
A wholesale deal is simple.
You get a property under contract at a price that makes sense for a cash buyer. Then you assign your purchase agreement to that buyer for an assignment fee.
So if you get a house under contract for $150,000 and assign it to a buyer for $165,000, you make a $15,000 assignment fee.
This works best when:
- The house needs enough work that retail buyers won’t touch it
- The seller wants speed and convenience more than top dollar
- The numbers leave enough room for a cash buyer to renovate and still make a profit
- You can move the deal quickly through your buyers list
This is still the cleanest and easiest exit strategy in most cases.
What Is a Novation?
Understanding wholesale vs novation is important here, because novations take a very different approach to exiting the deal.
A novation is different.
Instead of assigning your original contract to a cash buyer, you market the property on the MLS and find a retail buyer. Then your original agreement is effectively replaced by a new purchase agreement with that end buyer.
The seller still gets the amount you originally agreed to, or more specifically, the same net proceeds you committed to. You make your money from the difference between that amount and the final retail sale price, minus the costs you agree to cover.
And there are usually costs.
With novations, you are often paying for things like:
- Professional photos
- Cleaning
- Junk removal
- Minor repairs
- Realtor commissions
- Closing costs
- Sometimes inspection repairs requested by the buyer
So this is not just “list it and make money.”
You are stepping into a much more active role and partnering with the seller to get the deal across the finish line.
Deciding between wholesale vs novation often comes down to the condition of the property, the seller’s expectations, and the type of buyer the deal will attract.
When a Wholesale Exit Makes More Sense
A traditional wholesale deal is usually the better choice when:
1. The house needs heavy repairs
If the property is really rough and would not qualify for financing, it is usually much better for a flipper or landlord than a retail buyer.
2. The seller wants a fast sale with minimal involvement
If the seller just wants out now and doesn’t care about squeezing every extra dollar, wholesale is usually the cleaner play.
3. Your buyers list can move it easily
If you already know your buyers will jump on the deal, there’s usually no reason to complicate it.
4. The numbers already work
If you can make a good assignment fee and move it quickly, take the easy win.
When a Novation Makes More Sense
Novations usually work best when the house is in that gray area:
- Too tight for a cash buyer
- But still attractive to a retail buyer
The best novation candidates are usually:
1. Newer homes
Preferably built in the last 20 to 30 years.
2. Light to moderate repairs
Not full gut jobs. Usually cosmetic work, light cleanup, paint, flooring, minor deferred maintenance.
3. Livable condition
If it’s already financeable, that’s huge. Owner-occupant buyers using conventional, FHA, or VA loans are usually your end buyers on novation deals.
4. Sellers who want the highest possible price
Not necessarily top-dollar retail, but more than a flipper can pay.
5. Sellers are not in a hurry
Novation deals can take 30-60 days (or more) to close.
6. Sellers who are open to a partnership-style solution
They need to understand this is not a simple cash close in 7 days.
The Biggest Mistake People Make With Novations
The biggest mistake is offering too much.
A lot of people look at novations and think:
“Well, if I can list this thing and sell it retail, I can pay a lot more.”
That’s how you get into trouble.
Novations need margin.
In my opinion, if you’re crossing your fingers hoping a novation deal makes you $5,000 to $10,000, it’s probably not a good novation deal.
There’s too much risk.
If the property sits on the market longer than expected, if a buyer asks for repairs, if commissions or closing costs come in higher than expected, or if your price opinion was just slightly off, that small spread disappears fast.
I want to make at least $15,000 to $20,000 minimum on a novation deal.
Anything less than that and you’re taking on too much risk for too little reward.
Pitching Novations to a Seller
This is a really important part of the process.
If I think a novation may be the best exit, I still want to anchor low first with a traditional cash offer.
And honestly, I may anchor even lower than usual.
Why?
Because I want the seller to clearly see the difference between:
- A true cash offer
- And the novation option
If my cash offer is $220,000 and my novation option is $255,000, that higher option suddenly feels much more attractive.
That cash offer sets the table.
It helps the seller understand:
“This is what a true investor cash number looks like.”
Then when you present novation, it doesn’t feel like you’re lowballing them. It feels like you’re creating another path.
Simple Novation Pitch Script
Here’s a short version of how I would explain it:
“Here’s another option we may be able to offer. Instead of just buying the house directly for cash, we may be able to market the property on the MLS to look for a retail buyer. If we do that, your net proceeds would still stay the same as what we agreed to. The difference is I would be acting more like a partner in the transaction.
I would be covering the costs to help get the house ready for market: things like pictures, cleaning, junk removal, maybe minor repairs if needed. I would also be covering realtor commissions, closing costs, and potentially repairs a buyer asks for after inspections.
So you’re still getting the amount we agreed to, but I’m taking on the work and the risk to try to create a higher-priced retail sale.”
That’s the positioning.
You are not a realtor.
You are not listing the house for them as their agent.
You are their partner in getting the deal done and protecting their original net proceeds.
Process Flow and Paperwork for a Novation Deal
This is where people get confused, so let’s walk through the process clearly.
Step 1: Standard Purchase Agreement
You start the same way you always do, with your normal purchase agreement.
But this agreement should include:
- A novation clause / indemnification clause
- A marketing clause allowing you to market the property on the MLS
The marketing clause is important because it gives you the ability to pre-market the property.
If a seller asks why that language is in there, you can say:
“Sometimes we market a property on the MLS to pre-market it. That allows us to find potential partners on the deal, and in some cases, line up an end buyer before we close.”
That explanation is usually enough.
Step 2: Limited Power of Attorney
At the same time, it’s a very good idea to have the seller sign a limited power of attorney or attorney-in-fact document.
This gives you the authority to sign the listing documents on the seller’s behalf.
Important note:
This does not mean you are signing the new purchase agreement with the end buyer or signing their closing documents. The seller still does that.
This just makes the listing process easier.
If the seller does not want to sign a limited power of attorney, that’s okay too. They can sign the listing paperwork themselves.
Step 3: List the Property
Now you list the property with an agent.
This can be:
- A flat-fee / limited-service listing agent
- Or a traditional full-service agent
A lot of agents will reduce their commission if you explain you plan to bring them repeat business.
Step 4: End Buyer Comes In
Once you find a retail buyer and get an accepted offer, you then have the seller sign the novation and indemnification agreement.
If you know from the beginning that you’re definitely doing a novation, you can have them sign this up front. But often, I prefer to get it signed once we know we have a buyer and the plan is real.
Step 5: Seller Signs New Purchase Agreement
Next, the seller signs the new purchase agreement with the end buyer at the higher purchase price.
This is another good time to remind the seller:
- We already paid for prep work
- We are paying commissions
- We are paying closing costs
- We may be paying for concessions or repairs
- Their original net proceeds are protected
Because yes, that new purchase price may be $25,000 to $50,000 higher than your original agreement.
So you need to frame the difference correctly.
You can say:
“The difference between the two prices is what covers all the costs I’m taking on, plus my profit for structuring the deal, preparing the property, and helping get it closed.”
That’s fair. That’s honest. And that’s exactly what’s happening.
Step 6: Send Everything to Title
At that point, you submit the following to title:
- Original Purchase Agreement
- Novation and Indemnification Agreement
- New Purchase Agreement with end buyer
And you explain the structure.
Not every title company sees novations all the time, so don’t assume they’ll immediately understand your role.
Honestly, it’s a good idea to discuss this process with the title company before using them on a novation deal, just to make sure they’re comfortable with it.
Any decent title company should be able to handle it, but it’s still worth the conversation.
The Inspection Period and Repairs
Once you’re under contract with the retail buyer, inspections happen just like any normal retail transaction.
That means if the buyer asks for repairs or concessions, you are usually the one negotiating them and paying for them.
That’s another reason your numbers need to be strong going in.
If you guessed wrong on the as-is value, underestimated the risk, or priced the deal too aggressively with the seller, you can get squeezed really fast.
And if you then have to go back to the seller and renegotiate the original agreement?
That is not a good look on a novation deal.
Can it be done? Sure.
But it damages trust and makes the whole process feel messy.
That’s why I highly recommend:
- Triple checking your comps
- Being conservative
- Asking a real estate agent for a CMA
- Getting the as-is value dialed in before making the novation offer
Final Thoughts on Wholesale vs Novation
Understanding wholesale vs novation is key because both strategies can be extremely powerful in the right situation.
The key is knowing when to use which one.
If a deal works as a clean wholesale assignment, I’ll take that all day.
But if the house is financeable, in decent shape, and too tight for a cash buyer, novation can be a very powerful exit.
Just don’t make the mistake of overpaying.
Anchor low with the cash offer.
Present novation as the partnership option.
Protect your margin.
And make sure your paperwork and process are solid.
If you want to see how we structure real deals, talk through strategy, and break down what’s actually working, join my private Facebook group.
We talk about:
- Real wholesale deals
- Novation strategies
- Seller conversations
- Marketing systems
- Free training and Q&A
Click the link and request access.
Want to start flipping houses but not sure how to break in? Most successful investors start with wholesaling—it’s the fastest way to learn the business, build capital, and lock down deals without needing big money up front. In fact, many wholesalers never flip a single house because they’re making such big profits just assigning contracts! That’s exactly what I teach inside the Real World Wholesaling Academy. If you’re serious about breaking into real estate investing, this is your launchpad.