The decision in brief
In a double close, you buy the property and resell it the same day, so you are briefly on title. In a novation, a new agreement replaces your contract: the seller keeps title, you market the property, and the seller sells directly to the final buyer. Novations take longer but reach retail buyers.
View Transactional Funding →What is a novation agreement?
In contract law, a novation replaces an existing agreement with a new one. In investor circles, it describes a specific structure: instead of buying the property or assigning your contract, you and the seller sign a new agreement under which you prepare and market the property, often listing it on the open market, and the seller conveys title directly to the final buyer. The agreement sets how the sale proceeds are split.
Investors use novations to reach buyers who are not cash investors, and sometimes to make repairs before sale with the seller's permission.
What is a double close?
A double close is two closings: you buy from the seller (A–B) and resell to your end buyer (B–C), typically the same day. A transactional lender can fund 100% of the A–B purchase and is repaid from the B–C closing. At Axelrad, pricing starts at 1 point on the standard double close. See the transactional funding page.
Novation vs double close side by side
| Point | Novation | Double close |
|---|---|---|
| Who holds title | Seller, until the final sale | You, briefly, between closings |
| Typical buyer | Retail or financed buyers | Cash investors, or buyers ready to close |
| Timeline | Weeks to months of marketing | Usually same day once both contracts are signed |
| Funding needed | Possibly repair or holding costs | The A–B purchase price |
| Your payout | Share of sale proceeds under the agreement | Your spread, after costs and fee |
| Main risk | Property does not sell at the expected price | End buyer's funds do not arrive |
Why choose a novation?
When the price a retail buyer will pay is meaningfully higher than what a cash investor will pay, and you can afford to wait. A novation trades speed for price. It also avoids a resale-timing issue with some financed buyers, because the seller conveys directly. (For example, HUD's rule that resales within 90 days of the seller's acquisition are not eligible for FHA-insured financing, at 24 CFR 203.37a, turns on the seller's acquisition date, which a novation does not change.)
Why choose a double close?
When you have a cash buyer ready, the contract bans assignment, or you want your spread off the end buyer's paperwork. It is fast and simple, as long as the B–C contract is real and the buyer's money is verified.
What are the risks in a novation?
- Marketing risk. The property may not sell at the price you planned, or at all, within the agreement's term.
- Seller relationship risk. The seller still owns the property and can be difficult or change their mind.
- Disclosure and practice rules. How you market a property you do not own, and how the arrangement is disclosed to the seller and buyers, are areas where state rules and brokerage rules matter. Some states and title companies look closely at novations. Use a real estate attorney and work with a real estate agent where marketing rules require one.
A worked example
Example only, with hypothetical round numbers. A seller agrees to $200,000. A cash investor would pay $225,000. A retail buyer, after light cleanup, might pay $260,000.
- Double close: Sign the cash investor at $225,000. Transactional funding covers the A–B purchase, and Axelrad's fee starts at 1 point of the advance. You close in a day, with a spread of $25,000 before costs and fee.
- Novation: Sign a novation, spend $8,000 on cleanup and marketing, and the seller sells to a retail buyer at $260,000 after 60 days. After the seller's $200,000, the $8,000 and selling costs, your share is larger, but you waited two months and carried the risk of a lower price.
Can you switch from one to the other?
Sometimes. A deal that starts as a double close can become a novation if the cash buyer falls through and the seller agrees to a new arrangement before your contract deadlines pass. Going the other way, a novation that is not selling can sometimes be converted back into a purchase by you, if the seller agrees. Either switch needs a signed amendment and a fresh look at the numbers.
Key takeaways
- A double close puts you on title briefly; a novation keeps the seller on title until the final sale.
- Double closes are fast and suit cash buyers; novations take longer and reach retail buyers.
- Transactional funding covers 100% of the A–B purchase on a double close.
- Novations carry marketing and disclosure risk; use an attorney and follow local rules.
- Pick the exit that matches the buyer pool and the time you can afford.
Ready to close with a cash buyer?
If you have the end buyer signed, send both contracts to Axelrad and get the A–B leg reviewed for transactional funding.
Frequently asked questions
Is a novation the same as an assignment?
No. An assignment transfers your rights in the existing contract to a new buyer. A novation replaces the contract with a new agreement, and the seller sells directly to the final buyer.
Do I need transactional funding for a novation?
Usually not, because you never buy the property. You might need short-term money for repairs or marketing, which is a different request.
Which pays more, a novation or a double close?
It depends on the gap between cash-investor and retail prices, minus the cost and risk of waiting. Run both scenarios with real numbers before deciding.
Are novations legal?
Rules on marketing property you do not own and on disclosure vary by state. Treat this as general information and get advice from a real estate attorney where the property sits.
How long does a novation take?
It depends on the market and the agreement's term. Expect weeks to months, compared with a same-day double close once both contracts are signed.
Plan your next step
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