Choosing the Right Qualified Intermediary
Your Qualified Intermediary is the cornerstone of a successful 1031 exchange. Learn what to look for, what questions to ask, and how to protect your investment when selecting a QI to handle your tax-deferred exchange.
Why QI Selection Matters
What is a Qualified Intermediary?
A Qualified Intermediary (QI), also called an Exchange Accommodator or Exchange Facilitator, is an independent third party that facilitates 1031 exchanges by holding the proceeds from your property sale and using them to purchase your replacement property.
Why You Need a QI
IRS regulations require that you never have actual or constructive receipt of the exchange funds. If you touch the money—even for a moment—your entire exchange is disqualified and becomes immediately taxable. A QI ensures this critical requirement is met.
Key QI Responsibilities
Legal & Documentation
- • Prepare exchange agreements
- • Document property identification
- • Ensure IRS compliance
- • Provide tax reporting forms
- • Maintain exchange records
Financial Management
- • Receive sale proceeds
- • Hold funds securely
- • Track interest earnings
- • Disburse for purchases
- • Handle multiple properties
Critical Security Features to Require
Warning: QI Industry is Unregulated
Unlike banks or brokerages, Qualified Intermediaries are not federally regulated. Anyone can claim to be a QI. This makes your due diligence critical to protecting your funds.
Segregated Client Accounts
Your funds should NEVER be commingled with the QI's operating funds or other clients' money. Each client should have a separate, segregated account.
Ask for proof: Request documentation showing how client funds are segregated and protected from any claims against the QI company.
Fidelity Bond & Insurance
A fidelity bond protects against employee theft and fraud. Errors & Omissions insurance covers mistakes. Both are essential for protecting your exchange.
Minimum coverage: Look for at least $1 million in fidelity bond coverage and $1 million in E&O insurance. Larger QIs often carry much more.
FDIC-Insured Banking
Exchange funds should be held in FDIC-insured bank accounts at reputable institutions. Multiple banking relationships provide additional security.
Verify: Ask which banks they use and how funds are protected. Legitimate QIs will readily share this information.
Essential Questions to Ask Any QI
Security & Protection
- 1.
How are client funds protected?
Look for: Segregated accounts, separate from operating funds
- 2.
What insurance coverage do you carry?
Look for: Fidelity bond of $1M+, E&O insurance, cyber liability
- 3.
Which banks hold client funds?
Look for: Major FDIC-insured banks, multiple relationships
- 4.
Can I audit my account during the exchange?
Look for: Online access, regular statements, transparency
Experience & Track Record
- 5.
How long have you been in business?
Look for: 10+ years, stable ownership, growth history
- 6.
How many exchanges have you completed?
Look for: Thousands of successful exchanges, all types
- 7.
What types of exchanges do you handle?
Look for: All types including reverse and improvement
- 8.
Can you provide references?
Look for: CPAs, attorneys, recent clients willing to speak
Service & Support
- 9.
Who will handle my exchange?
Look for: Dedicated coordinator, not just call center
- 10.
What are your hours and response times?
Look for: Extended hours, 24-48 hour response guarantee
- 11.
How do you handle complex situations?
Look for: In-house expertise, attorney access, problem-solving
- 12.
What technology do you offer?
Look for: Online portal, document upload, tracking tools
Red Flags to Avoid
These warning signs should make you think twice about using a QI:
Commingled Funds
Client money mixed with operating accounts
No Insurance
Lack of fidelity bond or E&O coverage
Unusually Low Fees
May indicate corner-cutting on security
Pressure Tactics
Rushing you to sign without questions
Limited Experience
New company or few completed exchanges
No Physical Address
Only PO Box or virtual office
Won't Provide References
Unwilling to share client testimonials
Complex Fee Structure
Hidden fees or confusing pricing
Understanding QI Fees
Qualified Intermediary fees vary based on exchange complexity, property values, and service levels. Understanding typical fee structures helps you evaluate proposals and avoid surprises.
Standard Exchange Fees
Additional Services
Fee Considerations
- • Lowest price isn't always best—consider security and service
- • Ask about all fees upfront to avoid surprises
- • Some QIs share interest earned on your funds
- • Complex exchanges justify higher fees for expertise
QI Comparison Checklist
Use this checklist when evaluating Qualified Intermediaries:
Security & Protection
Experience & Expertise
Service & Support
Why Investors Choose National 1031 Center
Maximum Security
- ✓ $100M fidelity bond protection
- ✓ Segregated FDIC-insured accounts
- ✓ Daily reconciliation
- ✓ Multiple banking relationships
Expert Team
- ✓ Certified Exchange Specialists
- ✓ 30+ years combined experience
- ✓ In-house attorneys and CPAs
- ✓ Dedicated coordinators
Superior Service
- ✓ 48-hour response guarantee
- ✓ 24/7 emergency support
- ✓ Online account access
- ✓ White-glove treatment
Proven Track Record
- ✓ 10,000+ successful exchanges
- ✓ 98% client satisfaction
- ✓ All 50 states served
- ✓ A+ BBB rating
Experience the National 1031 Center Difference
Join thousands of investors who trust us with their most important transactions. Our combination of security, expertise, and service is unmatched in the industry.
Schedule Your Free ConsultationChoose Your QI with Confidence
The right Qualified Intermediary makes all the difference. Let our experts guide you through a secure, compliant exchange that protects your investment and maximizes your tax savings.
Have questions about QI selection? Call us: (877) 483-0427