Deal structure

What Are the Risks of a Novation Agreement?

A novation agreement can be a powerful tool for real estate investors, but it comes with its own set of risks that you must understand before committing. The primary risk is often tied to the seller's cooperation and the agent's involvement throughout the process.

November 3, 2026 · 3 min read

Reliance on seller cooperation and communication

With a novation, you are relying heavily on the seller to maintain the property, allow showings, and communicate effectively with the agent. If the seller becomes uncooperative or unresponsive, the entire deal can stall or collapse. This is a significant control issue.

Unlike an assignment where you typically control the property under contract, a novation often leaves the property in the seller's hands until closing. This means he or she has a strong incentive to continue cooperating, but that incentive can wane.

Agent commissions and fees can complicate things

A novation agreement involves listing the property with an agent, which means agent commissions are part of the deal. These commissions eat into your potential profit margin and can make the deal less attractive. You must factor these costs in upfront.

Sometimes agents may not fully understand the novation structure, leading to confusion or resistance. It is crucial to work with an agent who is experienced and comfortable with this type of arrangement. Otherwise, you risk delays or misunderstandings.

The deal can fall apart late in the process

Because a novation involves selling to an end buyer, the deal is subject to a traditional buyer's financing, inspections, and appraisals. Any of these can cause the deal to fall through, often at the last minute. This leaves you with wasted time and resources.

Unlike a direct cash purchase or assignment to a cash buyer, there are more moving parts and more opportunities for failure. This extended timeline and additional scrutiny can be a significant risk, especially if you have already invested time and money.

Limited control over the property's marketing

When an agent lists the property, he or she controls the marketing, pricing, and showing schedule. While you provide input, you do not have direct control over how the property is presented to potential buyers. This can impact the speed and price of the sale.

If the agent is not aggressive enough or misprices the property, it can sit on the market longer than anticipated. This ties up your capital and time, increasing your holding costs and reducing profitability. Your success is tied to the agent's performance.

Potential for extended timelines

Novation deals typically take longer to close than a direct cash wholesale or flip. The process involves finding an end buyer, going through inspections, appraisals, and securing financing. This can stretch the timeline from weeks to months.

Longer timelines mean increased risk of market changes, seller fatigue, or unforeseen title issues surfacing. If you need a quick turnaround, a novation might not be the most suitable deal structure for your specific situation.

Disclosure requirements and legal complexities

Novation agreements, especially when involving an agent, can have complex disclosure requirements. You must ensure all parties understand their roles, responsibilities, and the nature of the transaction. Missteps here can lead to legal complications.

It is always prudent to have a qualified real estate attorney review any novation agreement to ensure compliance with local and state laws. This is not legal advice, but a recommendation to seek professional counsel to protect yourself. State and local laws vary widely, so consult with an attorney licensed in your jurisdiction.

Questions people ask

Can the seller back out of a novation?

Yes, if the end buyer does not close, the novation agreement would typically terminate, and the seller would still own the property. You have to ensure your agreement protects your time and expenses.

What if the agent does not perform?

Your agreement with the agent and seller should outline expectations and consequences. If the agent is not performing, it can cause significant delays, impacting your potential profit or even killing the deal.

Is a novation legally binding?

Yes, a properly executed novation agreement is a legally binding contract. However, its enforceability can depend on specific clauses and local real estate laws. Always consult legal counsel.