A qualified intermediary (QI) is your legal gatekeeper in a 1031 exchange—they hold the funds, manage the timeline, and ensure IRS compliance. Choosing the wrong one can cost you the entire tax deferral, so due diligence isn't optional. Here are the critical questions that separate reliable intermediaries from risky ones.
What's Your Track Record and Experience Level?
Ask how long the intermediary has been in business and how many 1031 exchanges they've completed. A firm with 500+ completed exchanges in your state or property type brings real expertise. Request specific numbers: How many exchanges have they closed in the last 12 months? Have they handled your type of property (commercial, residential, vacant land, out-of-state)?
Also ask if they've ever had an IRS audit related to their exchange facilitation. While some audits happen, a QI with zero compliance issues is preferable. Transparency here matters—if they dodge the question or seem evasive, that's a red flag.
What Are Your Fee Structures?
QI fees typically range from $800 to $3,000+ depending on complexity, property type, and exchange size. Get a written fee quote upfront, not verbal estimates. Ask:
- Is there a flat fee or hourly rate?
- Are there additional charges for expedited timelines or multiple-property exchanges?
- Do you charge extra for wire transfers or international buyers?
- Are there fees if the exchange fails or the buyer backs out?
Some intermediaries bundle services; others nickel-and-dime per transaction. Request an itemized breakdown so you know exactly what you're paying for.
How Do You Handle the 45-Day and 180-Day Deadlines?
The IRS gives you 45 days to identify replacement properties and 180 days total to close. Your QI should have a documented system for tracking these critical dates. Ask how they alert you as deadlines approach and what happens if you miss one.
Can they handle exchanges that close near the 180-day mark, or do they pressure you to close earlier? Do they have contingency procedures if a replacement property deal falls through? A responsive QI will send you written reminders and have backup contact protocols (email, SMS, phone).
What's Your Communication Process and Availability?
You need reliable access to your intermediary, especially during the tense final weeks. Ask:
- Who is my primary contact, and what's their typical response time?
- Are you available for calls outside business hours if closings happen on Fridays?
- Do you provide a client portal to track exchange status in real time?
- How often will you send me status updates unprompted?
A QI that only responds to emails within 48 hours won't cut it when you're racing against a deadline. Request the names and direct contact info for your dedicated team members.
What About Exchange Failures and Dispute Resolution?
Ask what happens if your replacement property deal collapses in the final days. Can the QI help you identify a backup property quickly? Do they have a dispute resolution process if you disagree on compliance?
Also clarify: If the exchange fails and you don't get the tax deferral, who bears the responsibility? A quality intermediary should have professional liability insurance ($1M+ coverage is standard) and be willing to discuss what goes wrong and how they'd make it right.
How Do You Ensure IRS Compliance?
This is non-negotiable. Ask about their compliance procedures:
- How do you document the identification of replacement properties?
- What records do you keep and for how long (typically seven years minimum)?
- Do you provide a final exchange compliance report I can give my CPA?
- Are you registered with the IRS as a qualified intermediary?
Verify their IRS QI status directly on the IRS website—don't just take their word for it. Compliance errors can disqualify the entire exchange months later, so this is worth thorough vetting.
Do You Have References?
Request at least three client references from similar exchanges in the past year. Call them and ask about responsiveness, whether deadlines were met, and if they'd use the same QI again. A reluctant intermediary is a suspicious one.
A solid 1031 exchange hinges on choosing a trustworthy, competent intermediary. Take time to interview multiple candidates, compare fee structures, and verify credentials. Mercoly helps you find, compare, and vet qualified 1031 exchange service providers in one place, streamlining your selection process. Schedule consultations with at least two to three intermediaries before committing your capital.