Guides

The Qualified Intermediary Role

A qualified intermediary, often abbreviated as QI, is the entity that stands between an investor and the direct receipt of exchange proceeds during a Section 1031 like kind exchange. Under the safe harbor rules described in the Treasury Regulations, an investor generally cannot take actual or constructive receipt of sale proceeds from the relinquished property without disqualifying the exchange. The qualified intermediary steps into that role, receiving and holding exchange funds in escrow, then using those funds to acquire the replacement property on the investor's behalf. Investors in Dallas, TX typically engage a qualified intermediary before the relinquished property closes, because the intermediary agreement generally needs to be in place at or before that closing to preserve safe harbor treatment. The regulations also restrict who can serve as a qualified intermediary. An investor's attorney, accountant, real estate agent, employee, or certain family members are generally disqualified from serving in this role if they have acted as the investor's agent within the two years preceding the exchange, because the independence of the intermediary is central to the safe harbor. A qualified intermediary typically prepares the exchange agreement, holds sale proceeds in a segregated or qualified escrow account, receives the written identification of replacement property within the forty five day window, and disburses funds at the replacement property closing. Selecting a qualified intermediary with strong bonding, fidelity insurance, and clear escrow controls is a practical consideration for investors moving proceeds from Dallas Fort Worth commercial property sales, since the intermediary holds significant funds for weeks or months at a time. This page offers a general overview of the role and is not a recommendation of any specific qualified intermediary or a substitute for legal advice on selecting one for a particular transaction. Investors sometimes ask why a title company or escrow officer cannot simply serve this function, and the general answer is that a qualified intermediary agreement is a distinct contractual arrangement built specifically around the safe harbor requirements in the Treasury Regulations, not an incidental service layered onto a standard closing. Investors should also confirm how the intermediary safeguards deposited funds, since exchange proceeds are generally held for weeks at a time and the strength of the escrow controls, insurance, and bonding behind that account matters more than the size of the fee charged.