Novation vs. Assignment
Assignment transfers a party's interest in a contract to a third party, but the original party stays liable for the contract unless the other side releases them. Novation goes further: it substitutes a new party for the original one and releases the original from all further liability. A related move, delegation, transfers duties only, not rights.
Contract performance topics appear in the sale contracts and contract law portions of the national exam. Questions usually describe a party handing off a contract or its obligations and ask whether the original party is still liable, so the tested skill is telling release apart from transfer.
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Three ways a contract changes hands
A real estate contract can pass to other people in more than one way, and each way treats the original party differently. Assignment moves a party's rights under the contract to a third party. Delegation moves a party's duties. Novation does the biggest job of all: it swaps in a brand new party and releases the original one. The exam cares about one question above all, who is still on the hook when the dust settles.
Assignment: rights move, liability stays
To assign a contract is to transfer the benefit of it, usually the right to buy the property or to receive performance. The buyer in a sales contract can assign their interest to another buyer; the seller can assign their right to receive the purchase price. The critical fact is that assignment does not release the assignor. The original party keeps their liability to the other side of the contract unless that other side agrees to let them go. So the assignor can hand over the deal and still be sued on it.
Delegation: duties move, not rights
Delegation is the mirror image of assignment. It shifts the obligation to perform to someone else, but it does not hand over the rights. A party who delegates still owes the contract duties and remains liable if the delegate does not perform. This is why a listing agreement, which is a personal service contract, cannot be passed to another broker without consent: the seller hired a specific person for their skill and trust.
Novation: the old party walks away free
Novation is the only move that releases the original party. It replaces one party with another and requires the consent of everyone involved: the party staying, the party leaving, and the party stepping in. Once a novation is complete, the old party has no further rights or obligations. The difference shows up sharply in a sale. If a buyer assigns the purchase contract to a relative, the buyer can still be sued if the relative defaults. If the seller instead agrees to a full novation, the original buyer is out entirely and has no liability.
Example: the buyer who wants out
A buyer signs a sales contract, then moves across the country before closing. Their cousin agrees to take the deal. If the buyer simply assigns the contract to the cousin, the seller has a new payer but the original buyer remains liable if the cousin cannot close, because assignment alone does not release anyone. If instead all three parties sign a novation, the cousin becomes the buyer and the original buyer is released from the contract completely. The paperwork is the same deal, but the liability story is opposite.
The due-on-sale wrinkle
Assignment of a sales contract is not the same as assuming a mortgage. A due-on-sale clause warns the parties that transferring the property can trigger an acceleration of loans secured by it. That clause lives in the mortgage agreement, and its presence in the sale contract just puts everyone on notice that a surviving loan may be called due. Do not confuse who is liable on the sales contract with who owes the underlying mortgage debt.
The exam angle
Read these questions one way: who is bound, and who has been let go? Assignment and delegation keep the original party bound. Novation releases that party and only works with full consent. If a stem stresses that a party is still exposed, the answer is assignment. If it stresses that a party walks away clean, the answer is novation.
Memory trick
RAD
Three moves shorten a contract question to one letter: R-A-D.
- R
Rights transferred: an assignment hands over the benefits of a contract, the right to receive performance or property
- A
All liability stays: after an assignment the original party remains on the hook unless the other side agrees to release them
- D
Duties passed: a delegation moves the obligations to someone else but does not release the delegating party from the contract
Screenshot this: RAD is how you'll remember novation vs. assignment on exam day.
How the exam tricks you on this
The classic trap is treating a plain assignment as if it released the original party. An assignment shifts the contract interest to a third party, but the assignor stays liable for the contract unless the other side expressly releases them. Only a novation, which substitutes a new party with every party's consent, wipes out the original liability. When a scenario says the buyer is worried the original signer is still exposed, release is the whole question.
Two more patterns to watch:
- Delegation is not assignment. A delegation transfers duties, not rights. A contractor who hands off the work still owes the contract obligations. If a question emphasizes who must perform rather than who must pay, delegation is the concept in play.
- Personal services cannot be assigned. Listing agreements, employment contracts, and other personal service agreements generally are not assignable. A contract for the sale of land usually is, so check which kind the question gives you.
Try real exam questions on novation vs. assignment
These come straight from our question bank: answer to see the explanation instantly.
Which of the following is true regarding the assignability of an option?
Tip: press 1–4 to answer, Enter for the next question.
Related terms
Statute of Frauds
The statute of frauds is the rule that certain contracts must be in writing to be enforceable. It requires a contract conveying an interest in land to be written, to contain a legal description of the property, and to be signed by the party to be charged. The statute does not make an oral contract void, it makes it unenforceable.
Read definitionVoid vs. Voidable
A void contract never had any legal effect, so no one can enforce it and there is nothing to cancel. A voidable contract is valid and enforceable unless the party in the weaker position (a minor, or someone who was defrauded, coerced, or intoxicated) chooses to cancel it. Void means nobody can perform under it, voidable means one party can walk away.
Read definitionEscrow
Escrow is a neutral third-party arrangement that holds money and documents on behalf of a buyer and seller until every condition of the sale contract has been met. The escrow agent has no stake in the transaction: they simply follow the escrow instructions both parties signed, releasing funds and title only when every condition clears.
Read definitionTypes of Listing Agreements
There are four main types of listing agreement: open listing, exclusive agency, exclusive right to sell, and net listing. They differ in one thing, who the broker gets paid by. Under an open listing the broker is paid only if they are the one who brings the buyer, under exclusive agency the owner can still sell the property themselves and owe nothing, and under exclusive right to sell the broker earns a commission no matter who sells.
Read definition
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