Real estate transactions can take several shapes, and depending on your situation, certain deal structures might suit your needs better than others.
Among the most widely used and often misunderstood strategies are novation agreements and wholesaling. While both approaches offer opportunities for profit without the need to purchase property outright, they rely on entirely different legal mechanisms and come with their own sets of responsibilities, risks, and rewards.
If you’re exploring real estate investment opportunities or assisting clients through Florida’s intricate transaction landscape, it’s essential to understand the key differences between novation and wholesaling.
What Is Wholesaling in Florida Real Estate?
Wholesaling is a popular investment strategy that allows investors to profit by acting as a middleman between sellers and end buyers.
In a wholesale deal, the investor places a property under contract and then assigns the contract to another buyer, usually for a fee. The wholesaler never actually purchases or takes ownership of the property.
A wholesaler may also double close instead (also called a simultaneous closing). With a double closing, the wholesaler will close on the first transaction with the homeowner (the AB transaction) and then will close with the end buyer after that (the BC transaction). The BC transaction will usually take place the same day, or the day after.
How Wholesaling Works in Practice
Here’s how wholesale assignment deal works in the real world:
- The wholesaler identifies a motivated seller and enters into a purchase agreement.
- The contract must include a clause that allows assignment to another party.
- The wholesaler then markets the deal to potential end buyers (usually cash investors).
- Once an end buyer is found, the contract is assigned to them, and they close on the property.
- The wholesaler earns a fee—typically the difference between the contract price and the end buyer’s purchase price.
Example:
You place a property under contract for $180,000. You then find a real estate investor willing to pay $200,000 for it. You assign the contract to that investor, who closes on the deal and pays you a $20,000 assignment fee at closing.
Important Legal Considerations in Florida
Wholesaling is legal in Florida, but it must be done correctly:
- You must hold a valid, assignable contract to have an equitable interest in the property.
- Advertising the actual property (not your contract rights) may require a Florida real estate license.
- Many title companies are cautious with wholesale deals and may refuse to close if the documentation is unclear or the parties lack experience.
What Is Novation in Florida Real Estate?
Novation is a more formal legal process in which an original purchase agreement is replaced with a new agreement involving a new buyer.
This method allows an investor to facilitate a deal without ever taking title, similar to wholesaling, but with greater legal structure. Novations also open up a wider pool of buyers, as these properties are often advertised on the Multiple Listing Service (MLS).
How Novation Works
The typical novation process is as follows:
- The investor enters into a contract with the seller and markets the property on the MLS.
- A new buyer is found who agrees to buy the property at a higher price.
- All parties—the original seller, the investor, and the new buyer—agree to cancel the first contract and replace it with a new one.
- The new buyer closes directly with the seller and the seller pays the investor a novation fee at closing.
Example
You sign a purchase contract with a seller for $180,000. Later, a buyer offers $230,000. Instead of assigning your contract, you facilitate a novation. The original contract is voided, and a new contract is created with the new buyer at $230,000. You pay commissions and closing costs out of your profit, which total $10,000, and you collect the $40,000 difference as your novation fee.
Legal Implications of Novation
- Novation requires the consent of all involved parties.
- It involves additional legal documentation and formal agreement.
- Liability is transferred from the original buyer to the new buyer, which reduces risk for the investor.
Novation is often seen as a safer, more structured approach, especially in retail transactions or deals involving traditional financing.
Novation vs. Wholesaling: Key Differences
| Feature | Wholesaling | Novation |
| Method | Assignment of existing contract or a double closing. | New contract replaces original. |
| Seller Approval | Not required if contract is assignable. | Seller must approve novation. |
| Closing by Original Buyer? | Not needed for assignment but yes for a double closing. | No, new buyer closes. |
| Legal Complexity | Relatively simple. | Slightly more complex. |
| Best Use Case | Quick investor flips. | Retail or financed deals. |
Which Strategy Should You Choose in Florida?
Both novation and wholesaling have their advantages depending on the type of deal and the parties involved. Choosing the right strategy involves evaluating:
- Your end buyer: Are they a cash investor looking for a quick close, or a retail buyer using financing?
- Your seller: Are they flexible with creative structuring, or do they prefer a more traditional transaction like wholesaling?
- Your comfort level: Are you confident navigating legal gray areas, or do you prefer a more transparent and formalized process?
Wholesaling is generally faster and simpler, making it attractive to new investors. However, it comes with legal risks if not executed carefully, especially when it comes to marketing and licensing.
Novation, while more complex, offers added protection and clarity. It can be especially beneficial in deals involving cautious sellers, retail buyers, or institutional lenders. It also provides a cleaner paper trail and stronger legal footing.
Final Thoughts: Choosing Between Novation and Wholesaling
Both wholesaling and novation offer flexible ways to profit from real estate without ever taking ownership, but they aren’t interchangeable. Understanding the core differences in legality, structure, and execution can help you choose the right tool for the deal.
Need guidance on structuring your next Florida real estate transaction?
Call Marina Title today at 1-855-513-5880 or send us a message via our Secure Contact Form to learn more about our real estate and title services for buyers, sellers, and investors. We provide title, escrow, and closing services throughout the State of Florida.
