What Is a Novation Agreement in Real Estate?
A novation agreement is a legal document that replaces one party in a real estate contract with another. It creates a completely new contract and releases the original party from all obligations.
📘 What a Novation Agreement Does
A novation agreement is the written contract that makes a novation legally binding. While novation is the legal process, the novation agreement is the document that finalizes the substitution of parties.
It accomplishes three core functions:
- Releases the original buyer or seller from the contract
- Substitutes a new party into the agreement
- Creates a brand-new, enforceable real estate contract
This is different from an assignment, where the original party may still be liable.
Compare: Novation in Real Estate • Assignment Contracts
📅 When a Novation Agreement Is Used
- The original buyer cannot complete financing
- A new buyer wants to take over the purchase contract
- A seller changes before closing (e.g., inheritance or divorce)
- All parties prefer a clean transfer with no remaining liability
- A contract needs rewriting while replacing a party
A novation agreement requires written consent from every party, including the seller, the original buyer, the new buyer, and sometimes the lender.
Related concepts: Equitable Interest • Under Contract
📄 What a Novation Agreement Includes
- Names of the original party and the new party
- Release of the original party from all obligations
- Acceptance of all terms by the new party
- Acknowledgment and consent from all parties
- Reference to the original agreement being replaced
- Signatures from all required parties
Because a novation creates a new contract, the agreement often mirrors the original purchase agreement in detail.
Also see: Specific Performance
🏡 FSBO Sellers: Why This Matters
FSBO sellers should understand novation agreements because they completely release the original buyer from liability. Once signed, you can’t pursue the original buyer if the new one fails to close.
- The replacement buyer must be fully vetted and qualified
- Your title and escrow company must be notified
- The lender may restart underwriting
- Deadlines and contingencies may be reset
FSBO help: DIY Home Selling Playbook
🔑 Bottom Line
A novation agreement is the legal document that substitutes a new party into a real estate contract and fully releases the original party. It requires written consent from everyone involved and results in a completely new contract.
Explore related guides:
Novation • Assignment • Specific Performance