Novation Definition

Novation refers to the act of replacing a term in a contract with a different term. In order for the contract to be valid after novation, all parties must agree to the replacement term.


In real estate, contracts are used to indicate, among other things, the price of a property, the names of the buyers and sellers, and the amount of the deposit and closing costs. If a contract has been signed by all parties but someone wants to change something in the contract, this can be done via novation. When novation occurs, the old contract is obsolete, and the new one becomes legally binding once all parties agree to the change.

For example, let’s say you find a property that you want to purchase. You put in an offer for the property and sign the contract that states the deposit amount, closing costs, and other terms and conditions.

If the seller accepts your offer but changes the deposit amount as it was listed in the contract, that is only legally binding if you agree to the new amount and sign a new contract with those new terms listed.


Kristina Morales REALTOR headshotKristina Morales

REALTOR®, Team Lead

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