Novation offer calculator: max offer, seller net & profit

What this measures

A novation agreement replaces your purchase contract with a new arrangement: the seller keeps title, you get the right to repair the house and have it listed through a licensed agent, and the seller sells straight to the retail buyer. The seller gets the price you promised. You get what is left after the sale costs.

That is why a novation offer can be much higher than a cash offer. A cash buyer has to pay closing costs twice, carry a loan, and leave room for a resale. Under novation, the house sells once, at retail, and the costs come out of the retail price.

The calculator answers three questions. What is the most I can offer and still hit my profit? What does the seller net after paying off the mortgage? And does that beat what the seller would get from a cash wholesale offer or from listing the house as-is?

Formula

Retail sale costs = ARV × (commission % + closing cost %). Net sale proceeds = ARV − retail sale costs. Max novation offer = net sale proceeds − repairs − holding costs − target profit.

Investor profit = net sale proceeds − repairs − holding costs − novation price. Seller net under novation = novation price − payoff. Cash offer = ARV × rule % − repairs − assignment fee, and the seller nets that minus closing costs minus the payoff. Listing as-is nets the as-is value minus commissions, closing costs, and the payoff.

Example

Example

The sample deal: a $350,000 ARV, $20,000 of repairs, $6,000 of holding costs, 6% commissions, 2% closing costs, a $25,000 target profit, and a $150,000 payoff. The retail sale costs $28,000, so net proceeds are $322,000. The seller nets $60,700 on a 70% cash offer of $215,000 and $107,600 listing as-is at $280,000. Max novation offer is $271,000. Seller net is $121,000. Investor profit is $25,000.

Illustrative example. The values, costs, and payoff are sample inputs so the math is visible. They are not a property, a seller, or a deal RE Underwrite Lab did. The full walk-through with the same numbers is in the novation vs. wholesale guide.

Example

Second example

Illustrative example. A $200,000 ARV with 5% commissions and 3% closing costs leaves $184,000 after the sale. Take out $10,000 of repairs, $4,000 of holding costs, and a $15,000 target profit, and the max novation offer is $155,000. A seller who owes $90,000 nets $65,000 at that price. These figures are made up. They are not the sample in the form above.

When this ratio misleads

The max offer is only as good as the ARV. If the retail buyer pays $15,000 less than you typed, your profit drops by about $15,000 too, because every other cost stays the same. A seller net that beats listing as-is on paper can also lose to it once you count the extra months a novation listing takes.

Common pitfalls

Using a hopeful ARV. Pull real sold comps for fixed-up homes near the property, and test a lower number before you promise a price.

Forgetting that commissions come from the retail price. On a novation, 6% of a $350,000 sale is $21,000, not 6% of the seller's price.

Skipping the paperwork. A novation needs a clear written agreement on who pays for repairs if the house does not sell, how long you can market it, and how either side can cancel. Have a real estate attorney draft it.

Questions