Why You Need A Qualified Intermediary For A 1031 Exchange?

The importance of 1031 Qualified Intermediaries can’t be ignored when it comes to 1031 exchange investment. As per the rules framed by the IRS, a 1031 investor must involve a Qualified Intermediary (QI) in every exchange. In other words, a 1031 exchange is impossible without the participation of a Qualified Intermediary. If you’re planning a 1031 exchange, you must know the role of Qualified Intermediaries.

Who is a Qualified Intermediary (QI)?

A Qualified Intermediary or a facilitator is an individual who handles a 1031 exchange on behalf of investors. They help you find a buyer for your relinquished property, locates a replacement property for you, and also acquires the same. The more experienced QI, the easier it gets to complete a 1031 exchange.

Who can be a Qualified Intermediary?

There is no such eligibility criteria or requirements to qualify as a Qualified Intermediary. A Qualified Intermediary must have the citizenship of the United States and a handful of experience in the real estate market. However, there is a condition. The Qualified Intermediary must not be related to the 1031 investor in any sense.

Role of a Qualified Intermediary 

The primary task of a Qualified Intermediary involves doing all due diligence and preparing your exchange documents. The next job involves finding a buyer for your relinquished property if you don’t want to do it on your own. Upon closing on the sale of the relinquished property, you must deposit the sale proceeds into a third party account, also known as an escrow. Your QI keeps the proceeds safe until the transaction is closed.

The next task involves transferring the funds to the seller and acquiring the replacement property. That’s all. Your Qualified Intermediary will transfer the property title to you on the closing day. Not to mention, they complete the entire process within six months, that is, within 180 days.

How A QI Helps In Property Identification?

Finding an ideal replacement property for a 1031 exchange requires a lot of research and contacts in the local real estate market. Sometimes, even after identifying a property, investors fail to acquire it. It’s important to talk to the seller in advance and convince them that you will buy the property. Just showing interest in a property might not be enough. Therefore, a QI speaks with the seller on your behalf and ensures that they don’t step back at the time of selling the property. Otherwise, investors may fail to identify replacement properties without the help of Qualified Intermediaries.


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