Proceeds from the sale will be going to an intermediary

1031 Exchanges
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Proceeds from the sale will be going to an intermediary

Rich Hupper
Broker / Investor · Tewksbury, MA · Member since 2008 · 1k+ posts · 351 votes

forgive my ignorance on the matter, I want to make sure nothing unexpected happens to my buyer.

He is about to sign a purchase and sale where the proceeds of the property will go to an intermediary. I was led to believe that when a 1031 exchange transaction took place the buyer and seller were trading properties of equal equity. If the equities were not equal a boot would be needed. 

My buyer does not have any property to trade all he has is a loan for the sale. What exactly is happening here?

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  • Bill ExeterBusiness Member
    1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
    10y

    Hi Rich,

    You are referring to an equity exchange, which is different from a 1031 Exchange.  Years ago investors would try to do both a 1031 Exchange with equal equities and closing concurrently.  In this case, the seller is structuring a 1031 Exchange, the funds go to a Qualified Intermediary upon closing, and they seller then has to identify and buy one or more replacement properties that are equal or greater in value than what he/she sold and must reinvest all of his/her equity.  Sellers rarely exchange properties with the buyer anymore. 

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  • Rich Hupper
    OP
    Broker / Investor · Tewksbury, MA · Member since 2008 · 1k+ posts · 351 votes
    10y

    @Bill Exeter Perfect. I knew I had something mixed up. The equity exchange seems like it would be quite a challenge. 

    Do intermediaries charge a lot for their services? Could a real estate broker be an intermediary?

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    10y

    @Rich Hupper, The deferred exchange is a relatively simply process with some very specific rules that must be followed.  For the participants, the transaction is simply the sale of investment real estate followed by the purchase of investment real estate.  The devil is in the details of course and that is what the qualified intermediary is there to do.

    Most National intermediaries will charge between 700 - 1000 for a garden variety exchange.  Their job is to document the exchange appropriately, hold and transfer the funds appropriately, and make sure the client follows all IRS criteria to make the transaction successfully qualify as a 1031 exchange.  

    The intermediary must be an unrelated third party to the client.  Most QI firms are comprised of accounting/legal types who have chosen to go a mile deep in an inch wide part of the tax code and limit their practice to that alone.  

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  • Rich Hupper
    OP
    Broker / Investor · Tewksbury, MA · Member since 2008 · 1k+ posts · 351 votes
    10y

    @Dave Foster

    Very interesting thank you. This pretty much settles my question on the matter. 

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  • Bill ExeterBusiness Member
    1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Rich Hupper:

    @Bill Exeter Perfect. I knew I had something mixed up. The equity exchange seems like it would be quite a challenge. 

    Do intermediaries charge a lot for their services? Could a real estate broker be an intermediary?

    Hi Rich,

    There is a very specific defined industry that specializes in equity exchanging.  It is actually a great way to solve complex real estate challenges/problems, but is not well known or popular.  There are only a handful of real estate brokers and principals that really understand the concepts and actively practice them.

    Qualified Intermediaries generally charge somewhere between $700.00 to $1,200.00 on the west coast and up to $1,800.00 on the east coast depending on the amount of competition in the local area.  The Qualified Intermediary can not be a disqualified party.  The real estate broker can serve as a Qualified Intermediary IF and ONLY IF they have not represented the clients (exchangor) during the two (2) years preceding the 1031 Exchange and will not represent the clients during the two (2) years after the 1031 Exchange. 

    Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews
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