A Qualified Intermediary (QI) is one of the most important aspects of an exchange. A QI is required by federal tax law and provides a safe harbor for the taxpayer. There are no federal or state laws governing who can be a QI-only laws concerning who cannot serve as your QI (i.e. your attorney, banker, CPA, employee or any family member). There are also no laws regulating training or licensing. However, with thorough research, you can choose your QI with confidence.
Investigate their experience, background and credentials. They should be CPAs or attorneys with extensive real estate and 1031 Exchange knowledge and expertise.
Confirm they guarantee their exchanges without additional charges. Do they require you to release your right to sue, or will they pay the penalty if they make a mistake?
Find out who keeps the interest on the funds they hold. Some QIs will quote low or flat fees and keep the interest earned from the exchange funds that they hold.
Ensure that your QI is accessible and available to meet with you face-to-face. Can you reach them by phone anytime-without charge-to answer all questions and eliminate your concerns?
Verify they are active members of the Federation of Exchange Accommodators (FEA), the only national organization for qualified intermediaries.
Confirm that they carry an independent bond by an insurance company (this is different than title insurance bonding) and that they have Errors and Omissions coverage for your protection. Without a bonding guarantee, the exchanger runs the risk of mishandling of funds or theft by the intermediary. Bonding is often difficult to obtain and many intermediaries practice without it.
