Novation agreements

How it works

You sign a novation agreement with the seller. They keep title. You bring in a crew, do the renovation, list it on MLS, and find an end buyer. At close, the seller gets their agreed-upon number, you get the rest.

When novation fits

Novation works best on light cosmetic deals where a 30-day rehab can lift the price 10-20%. The seller wants more than the as-is offer they're getting, you want a chance to capture the upside without risking cash on the wrong deal.

Why no earnest money risk

Because title doesn't transfer until close, you're not on the hook for earnest money or contract default if the deal falls through. Your only exposure is the rehab money you put in — and only if you actually start the work.

The economics

Typical novation structure: seller gets the as-is offer they would have accepted from a cash buyer, you keep everything above that minus rehab costs and selling fees. On a $50k lift, you net $30-35k after costs.

Risks and mitigations

The biggest risk is the seller backs out before close. Mitigate with a recorded memorandum, a real attorney drafting the agreement, and a tight contingent buyer lined up. Don't start rehab until paperwork is signed and recorded.

A novation lets you renovate and list a property while the seller keeps title until close. You split the proceeds based on a pre-agreed structure. No earnest money risk, no rehab capital tied up in a property you don't own yet.