"Sale Conditions: 1031 Exchange" - What does this mean for buyer?

13 Replies

For the most part, I think I understand the basic idea of a 1031 Exchange. Let's see: You sell one property, and to avoid paying cap gains tax, you then reinvest those profits within 45 days into a larger "like kind" property. Yeah?
So if I, as a buyer (full disclosure, major newbie here!), see that under "sale conditions" it's listed as 1031 Exchange, what affect would that have on me - somebody interested in purchasing their property? Could this mean the actual sell of this property is contingent upon the seller finding a property of their own to 1031 Exchange?

Thank for your help clarifying this for me.

The sellers plans to exchange will not affect you or the terms of the sale. They just need to include that language as part of the process.

@Adrian Rae

It does not affect you in the least.  It Could help your offer though if the seller thinks he might have difficulty in identifying his replacement property within 45 days (he has 180 days to actually close on it) And it’s okay with you....you could offer to delay your closing for up to 30 days or so, to help him have more time in identifying his replacement property.  It’s always good advice for someone doing a 1031 to actually have their replacement property under contract when they sell the original property, but few actually do this.

@Adrian Rae , The contract would have to specify that the sale was contingent upon finding a purchase property. Most standard MLS contracts now include a box check for 1031 exchanges. It simply means that you agree to let them perform a 1031 exchange which starts with the sale - not that you have to help them finish. So check the contract again to verify.

I like @Wayne Brooks suggestion of finding out the needs of the seller and offering a delayed closing if that would help their property search!  On the other side, it is also possible that they have found the property they want to exchange into or already have it under contract.  In that event they may be more flexible on price for an accelerated closing.

It means that you, as the purchaser, cannot close on the purchase of the property until (subject to the terms of the contract) the seller identifies a new asset to acquire with the proceeds of the sale. 

I just closed on such a deal where I was the purchaser.  It took over 145 days, even though I was ready to close on day 60. 

@Zoran M. No, that is incorrect.  The seller has 45 days after Closing on the sold property to identify the replacement property.  Maybe your seller just wanted to put it under contract first.

Originally posted by @Wayne Brooks :

@Zoran M. No, that is incorrect.  The seller has 45 days after Closing on the sold property to identify the replacement property.  Maybe your seller just wanted to put it under contract first.

You're correct about the 45 days. However, our seller wanted to actually identify the property prior to closing - they had extension rights in their contract.  This was for a $15m+ commercial transaction.