How To Select A Competent Qualified Intermediary - Part 2

Previously, we shared with you some background on what a Qualified Intermediary does and the regulations (or lack of) surrounding this important role in the 1031 exchange process. Now that you understand the true scope of this role, it is time to identify the key questions to ask as you perform due diligence. You should know the answers to all of the following before selecting your next QI.

• What is the knowledge, expertise and experience of the qualified intermediary? The best way to safeguard against unexpected issues in a 1031 exchange is by partnering with a QI who has the technical depth, experience and knowledge to catch problems before they arise. Be sure to ask about the QI’s background and past 1031 exchange experience.
• What internal policies, procedures and safeguards are in place? A competent and seasoned QI will welcome your inquiry as to the audit controls he or she has in place to ensure a smooth transaction. If you ask and are met with vague statements, it is a possible sign that the QI is not as detail-oriented as necessary to ensure a streamlined process.
• Does the QI maintain separate, segregated qualified trust or escrow accounts? A responsible QI will keep all client funds clearly separate from his or her own funds at all times. The safest way is by using dedicated trust or escrow accounts for all client funds.
• Is the QI bonded and insured? Given the reality that your QI will hold a significant amount of your money for a potentially lengthy amount of time, you want to make sure that your assets are protected against catastrophic loss. To best safeguard your resources, ensure that your QI is both bonded and insured, and ask to know about his or her claims record, too, for good measure.
• Does the QI have Errors & Omissions Insurance? At the end of the day, qualified intermediaries are only human and human beings make the occasional mistake. Be sure to understand if your potential QI has appropriate insurance in place to safeguard against mistakes during the 1031 exchange process.

While not even the most stringent due diligence process can promise 100% safety, you will be much further ahead if you take the time to ask prudent questions before selecting your next qualified intermediary.

To learn more about 1031 exchanges or our qualified intermediary and replacement property locator services, please visit our website.