How to Disclose a Novation Properly So Everyone’s Protected

A novation isn’t like a standard wholesale assignment. With wholesaling, you’re simply assigning your rights in a contract to a cash buyer. With novations, you’re rewriting the agreement between seller and buyer so you can bring in a retail buyer through the MLS.

That extra step, changing out the buyer and marketing the home on-market, brings a bigger spotlight. Lenders, agents, and attorneys all want to know exactly what’s happening. If you fail to disclose properly, you’re risking the deal, your reputation, and potentially your legal standing.

The good news: when you disclose correctly, everyone involved understands the deal, feels protected, and lets the transaction move forward.

What “Disclosure” Means in a Novation

Disclosure isn’t about overloading people with legal talk. It’s about clarity. Everyone involved, the seller, the buyer, the agents, and the title company, needs to understand:

• Who has right to sell the property

• How the novation agreement works

• What fees or compensation are being paid, and to whom

• What obligations exist for repairs, access, and closing timelines

Your job is to keep the deal transparent. Think of disclosure as shining a flashlight into the corners so nothing’s hidden.

Parties That Need Clear Disclosure

The Seller

The seller must fully understand:

• You are not the end buyer. You are facilitating a retail sale,

• They are authorizing you to list the property on the MLS through a licensed agent

• There may be repair requests or lender-required fixes before closing

• Your compensation comes from the difference between the price you negotiated and what the retail buyer pays

The Listing Agent

The listing agent must understand:

• A novation agreement is in place

• The property is being marketed on behalf of the seller, but the purchase agreement will be replaced with the retail buyer’s contract

• Your role and compensation are documented and approved by the seller

The Retail Buyer and Their Agent

The retail side must understand:

• This is a standard retail transaction once their contract is signed

• The seller is the legal seller of record

• They are protected by normal disclosures, inspections, and financing contingencies

The Title Company or Closing Attorney

The closing team must understand:

• A novation agreement exists, replacing your original purchase agreement

• Your compensation structure (spread, fee, or assignment inside the novation) must be approved and documented

• They’ll be handling funds in a way that reflects the novation setup

How to Disclose to Each Party

With the Seller

• Walk them through the novation agreement line by line

• Put all terms in writing: listing authorization, compensation, repairs, and access

• Make sure they initial every key section, especially around MLS listing authority and compensation

With the Agent

• Provide them with a copy of the novation agreement

• Clearly explain your role and confirm their broker’s compliance standards

• Put your agreement in writing to avoid confusion later about commissions or fees

With the Title Company

• Send the novation agreement upfront, not at the last minute

• Clarify how your compensation shows on the closing statement

• Ask if they have compliance requirements you need to meet in your state

With the Retail Buyer

• Use standard state-required disclosures (property condition, lead paint, etc.)

• Don’t confuse them with novation language, their deal is a normal retail contract

• Ensure their agent has no unanswered questions

Common Disclosure Mistakes That Kill Novation Deals

• Not explaining to the seller that you won’t be the end buyer

• Failing to involve the listing agent’s broker early, leading to pushback later

• Hiding compensation instead of putting it clearly on the settlement statement

• Assuming the title company “will figure it out” instead of sending documents upfront

• Not documenting repair agreements, leading to fights when inspection requests come in

Compliance and Legal Protection

A novation must hold up under legal and MLS scrutiny. To stay compliant:

• Always use written novation agreements (no verbal deals)

• Use state-approved listing agreements with the seller’s chosen agent

• Keep all addenda in the transaction file

• Ensure compensation is visible and approved in writing

• Work with a title company or attorney that understands novations

This paper trail is your protection if anyone challenges the transaction later.

Why Proper Disclosure Protects Everyone

• The seller avoids surprises about repairs, commissions, or how you’re paid

• The buyer gets a clean retail deal with all standard protections

• The agent knows their role, commission, and compliance requirements are covered

• You avoid accusations of misrepresentation or hidden fees

Proper disclosure turns what could feel like a “gray area” deal into a clean, straightforward transaction.

Example Disclosure Flow in a Novation Deal

1. You sign a purchase agreement with the seller

2. You then sign a novation agreement, allowing you to market on MLS

3. You disclose the novation to the listing agent and provide documents

4. The property is listed on MLS with the seller as the seller of record

5. A retail buyer makes an offer through their agent

6. The seller signs the retail contract, replacing your original purchase agreement

7. At closing, your compensation is shown on the settlement statement as agreed in the novation

Each step is transparent. Everyone knows what’s happening. That’s what disclosure looks like in practice.

The Bottom Line

Disclosing a novation properly isn’t just about keeping the deal legal. It’s about trust. Sellers trust you more when you explain everything up front.

Agents respect you more when you provide documents and clarity. Buyers move forward without hesitation when the process feels like a normal retail deal.

When disclosure is tight, everyone’s protected, and your novation deals close smoother, faster, and with less resistance.