Novation: structure, paperwork and who must be licensed

How it works

The seller agrees to a fixed net at closing. You are permitted to repair and market the property, it is sold at retail to an end buyer, and anything above the seller's net and the costs is yours. Title transfers once, from the seller to the retail buyer.

This fits the seller who has some equity but not enough for a cash discount, and whose house needs work they cannot fund.

The maths

Retail sale price − agent commissions and seller closing costs − repairs you fund − holding costs − the seller's agreed net = your spread. Model it before you sign; the resale cost line alone is usually seven to nine percent.

Licensing and documentation

In several states, marketing a property you do not own for compensation is brokerage. Some states permit novations with an agreement and a licensed agent listing it; others do not. Your compensation must be documented as what it actually is — never dress a brokerage or referral payment as a service fee.

Required paperwork typically includes the novation or purchase agreement, a scope of work and cost authorisation, a clear net-to-seller statement, and written consent to market and repair.

Risks you carry

You fund repairs on someone else's house. The seller can become uncooperative. The market can move during the hold. Price this risk in, and cap your rehab spend.