Definition
Novation is a legal replacement of one party in a contract with a new party, done with everyone's agreement, so that the original party is completely released from further obligation. In residential real estate, sellers sometimes encounter novation agreements where a buyer takes over managing and improving the home while the seller technically remains on title until it resells, at which point the seller receives an agreed share of the higher retail price. This is a more complex arrangement than a straightforward cash sale, because your payday depends on a future market sale rather than a set closing date. It can produce a larger check than an as-is sale, but it also means living with market risk and a longer timeline before you're fully paid. Because the legal mechanics differ from a simple purchase agreement, novation arrangements need very clear, attorney-reviewed written terms. Sellers considering this route should weigh the extra dollars against the extra waiting and uncertainty.
Example
Instead of taking a quick as-is offer, Tom agrees to a novation arrangement where a local buyer renovates his outdated ranch home while Tom stays on title. The written agreement spells out exactly which renovation costs and fees will be subtracted from the eventual sale price, and Tom has his attorney review it before signing. Six months later the house sells on the open market for $340,000, and per their agreement Tom receives $255,000 after the renovation costs and buyer's fee are subtracted. During those six months, Tom kept checking in on progress and was relieved the renovation stayed roughly on budget and on schedule. Tom ends up with more money than a cash offer would have brought, but he waited half a year and had to trust the buyer's renovation budget and timeline the entire time. He later says he'd only do it again if he didn't need the money quickly.