How Alabama Novations Work for Wholesalers

What a novation is

A novation is a written agreement that replaces or restructures part of an existing contract. The parties agree to new terms or a new arrangement, and everyone with a stake in the contract signs.

In wholesaling, the word describes a specific play. You have a purchase contract with a seller. Instead of assigning that contract to a cash investor, you bring in a licensed agent. The agent lists the home, a retail buyer purchases it, and your fee is paid at closing from the proceeds above the seller's agreed price.

People use the word loosely, so the label matters less than the documents. Read what you are signing and make sure it says who gets paid what, and when.

Why wholesalers use one

An investor will only pay so much, and that caps an assignment fee. A retail buyer may pay full market price.
The home shows well enough to sell on the open market, so it does not need an investor's discount.
The seller wants the exposure and the price that come with a regular listing.
Your contract limits or discourages assignment, and a listing is the cleaner route.

Who is involved

The seller: Owns the property, agreed to your price, and now agrees to list it and to the fee arrangement.
You: The wholesaler with the contract. You keep your position in the deal and earn a fee at closing.
The listing agent: A licensed agent and brokerage that prices, markets and sells the home. Their duties run to the seller.
The retail buyer: Usually a buyer using financing, sometimes an investor who found the home on the MLS.
The closing office: The title company or closing attorney that collects the money and pays everyone at closing.

The paperwork

Exact forms vary by deal. Expect these pieces, and have your own attorney review them.

Your original purchase contract with the seller. Its terms, deadlines and any assignment language matter.
The AIF, the owner's written authorization for you to list and market the property on the MLS with an agent. Read about the AIF.
A novation agreement signed by the seller, you and the brokerage. It sets out the arrangement and writes your fee down.
A listing agreement between the seller and the brokerage, with the list price, term and commission.
Disclosures to the seller about your fee and your role.

Step by step

Send the deal. Share the signed contract, address, photos, repair estimate and seller's situation. The contract gets read first.
Price it and agree on terms. The agent pulls comparable sales and gives a list price opinion. You, the seller and the brokerage agree on list price, fee and timeline.
Sign everything in writing. The AIF, novation agreement and listing agreement are signed, with your fee disclosed to the seller.
List and sell. Photos, MLS listing, showings, offers, inspection requests and the appraisal are handled by the agent while you stay informed.
Close. The closing office pays the seller the agreed price, pays the commission under the listing agreement, and pays your fee as written.

How and when you get paid

Your fee is written into the agreement and paid at closing from the sale proceeds. If the home does not close, there is no spread to pay. The seller's price is fixed, so commission and costs come out of the amount above it. That is why the numbers need to work before you start. The calculator shows the effect.

What can go wrong

The seller changes their mind. A novation needs the seller's signature and cooperation through closing.
The price is wrong. Too high and the home sits. Too low and your fee shrinks.
The condition is worse than expected. Inspection and appraisal issues can cost the spread.
Time runs out. A listing takes longer than an assignment, and your contract has deadlines.
Title problems. Liens or ownership questions can delay or stop a closing.
The fee is not disclosed. Hidden fees put every party at risk.

Alabama rules are still in motion

Check the current status

Alabama lawmakers have been working on wholesaling legislation. A 2026 bill, HB586, would have required licensing and disclosures for wholesalers. According to the Alabama Association of REALTORS® session recap, it passed the House but not the Senate, so it was not enacted, and more work was expected after the session.

Rules can change quickly. Ask your attorney what applies to your deal before you sign anything. Read the recap.

Terms to know

Novation: A written agreement that replaces or restructures part of a contract with everyone's consent.
Assignment: Transferring your rights in a purchase contract to another buyer for a fee.
Equitable interest: The interest a buyer under contract holds before closing.
AIF: The owner's written authorization for you to list and market the property on the MLS with an agent.
Spread: Your fee: what the home sells for above the seller's price, minus commission and costs.
Listing agreement: The contract that hires a brokerage to sell a home, including price, term and commission.
Disclosure: A written statement of facts a party must share, such as your fee and your role in the deal.

This guide is general education, not legal advice. Anderson Realty is not your lawyer.

How Alabama novations work for wholesalers