Qualified Intermediary Coordination

Qualified intermediary coordination provides third party qualified intermediary selection and coordination for Phoenix, AZ investors completing a Section 1031 exchange. A qualified intermediary, sometimes called an accommodator or facilitator, is a required party in nearly every delayed exchange because Treasury Regulations disqualify an exchange if the investor, or certain related parties, has actual or constructive receipt of the sale proceeds at any point. The intermediary enters into an exchange agreement with the investor, receives the proceeds from the sale of the relinquished property directly from escrow, and later disburses those funds to acquire the replacement property, all without the investor ever touching the cash.

Why Intermediary Selection Matters

Not every intermediary offers the same level of protection for client funds, and the industry has seen intermediary failures in the past that resulted in investors losing exchange proceeds entirely. Because of this, we evaluate credentials that go beyond a basic web search, including whether the intermediary maintains a fidelity bond and errors and omissions insurance, whether client funds are held in a segregated qualified escrow account or qualified trust account rather than commingled with company operating funds, and whether the intermediary requires dual signatures or written investor authorization before releasing funds. Arizona does not currently license or regulate qualified intermediaries as a distinct profession the way some states do, which makes independent due diligence on bonding, insurance, and fund handling practices particularly important for Phoenix investors before an exchange agreement is signed.

Coordination Throughout the Exchange

Once an intermediary is selected, our role shifts to coordination rather than selection. We review the exchange agreement for standard provisions, confirm assignment language is included in both the relinquished and replacement property purchase contracts, and act as a point of contact between the investor, the intermediary, escrow, and the investor's other advisors so instructions are communicated clearly and on schedule. Wire instructions are a particular area of focus, since qualified intermediary transactions are a known target for wire fraud schemes, and we recommend verbal confirmation of wire instructions through a known phone number before any funds move, regardless of how a wire instruction email appears to have been sent.

The qualified intermediary is also responsible for tracking whether exchange proceeds are fully reinvested or whether a portion is returned to the investor as boot, which is generally taxable in the year it is received. We coordinate with the intermediary throughout identification and closing so the investor has visibility into remaining exchange funds at each stage, and we support the intermediary's preparation of closing statements the investor's tax advisor will need when completing Form 8824 for the exchange.

Related party rules also come up in intermediary coordination when an investor's spouse, child, parent, sibling, or a controlled entity is on either side of the transaction. Exchanges between related parties are permitted but face additional scrutiny under Section 1031(f), including a general requirement that both parties hold their respective properties for at least two years after the exchange, and the qualified intermediary's documentation needs to reflect these relationships accurately from the outset. We flag related party situations as soon as they are identified so the intermediary and the investor's attorney can structure the agreement correctly rather than discovering a related party issue after closing.

Fee structures also vary among qualified intermediaries operating in the Phoenix market, and the lowest quoted fee is not always the best indicator of quality. A basic forward exchange fee typically covers document preparation and standard fund holding, while additional fees may apply for reverse exchanges, improvement exchanges, multiple relinquished or replacement properties, or expedited processing near a deadline. We review the fee schedule alongside the bonding, insurance, and fund handling questions discussed above so the investor can compare intermediaries on total value rather than price alone before signing an exchange agreement. Because the intermediary relationship spans the entire exchange, from the day the relinquished property lists through the day the replacement property closes, we treat responsiveness and clarity of communication as part of the evaluation alongside the more technical bonding and fee criteria described above.