What do I look for when selecting a qualified intermediary?

There has never been a better time for a properly structured real estate exchange then today. We can now breathe a sigh of relief with the advent of the exchange regulations, which have provided the flexibility and certainty that were arguably lacking in the past. The Internal Revenue Service has been very accommodating in providing a reasonable structure to follow when structuring real estate exchanges through the Exchange Regulations. But the IRS has served notice on the tax and real estate community that they will be watching the real estate exchange area, and are requiring that the guidelines of the exchange regulations be followed in all aspects. It is imperative that taxpayers (sellers) observe the established guidelines to insure the integrity of the proposed real estate exchange transaction. Also, it's important to make use of real professionals who have an understanding and are experienced in structuring real estate exchanges based on the exchange regulations. The most important person involved in structuring real estate exchanges today is the "qualified intermediary." The qualified intermediary represents the taxpayer (seller) and becomes the quarterback of the proposed exchange transaction. The qualified intermediary should be carefully chosen so that the exchange can be defensible. As principal in the exchange transaction, the qualified intermediary will be as responsible as the taxpayer (seller) for performance of contractual obligations in the relinquished and replacement properties. The qualified intermediary should be a corporation instead of an individual primarily because death or incapacity of an individual intermediary would affect a real estate exchange. Probate, for example, could delay timely closing of the replacement property and blow the exchange transaction. A professional qualified intermediary, properly trained, will identify problems before they threaten an exchange transaction. Having specialized training in negotiation, contract law, taxation, investment analysis, escrow procedure and real estate practice, as well as having a proven success record in structuring real estate exchanges based on the exchange regulations, are extremely valuable when problems arise. When other individuals in the transaction - such as the real estate professional, attorney or accountant - don't have an understanding of how the exchange transaction needs to be structured, a qualified intermediary can save the day! Who cannot be a qualified intermediary? You (the taxpayer (seller); your agent or agents; or anyone who, within a two-year period of the exchange transaction, acted as your real estate agent/broker, attorney, accountant/CPA, mortgage banker/broker or investment/financial advisor/broker in any capacity. In addition, employees, siblings, spouse, ancestors, lineal descendants, a corporation, trust or partnership of which you are a controlling partner, stockholder or beneficiary are all labeled a "disqualified person" which would invalidate the exchange transaction. Since the qualified intermediary is the most important part of a real estate exchange, it's important to know whom you are dealing with. You should ask questions such as: How long has the qualified intermediary been in business? Do they provide qualified intermediary services only on a full-time or part-time basis to supplement their income (and in return do you get part-time service) or are you their guinea pig? Do they have any formal training or a professional designation in real estate exchanging such as the CEA- Certified Exchange Advisor - offered through the American Institute of Real Estate Exchangors? Also is the qualified intermediary bonded so that you can relax knowing your funds will be there when you need them? It's amazing the number of people who only want to know how much a qualified intermediary charges, and then picks one who charges the least rather than knowing what services are being provided and whether the intermediary knows what they are doing. You may save a few dollars, but will the IRS accept that as an excuse if the exchange is handled incorrectly? Don't just shop for price. You wouldn't do the same when choosing a doctor or an attorney, so why should that be any different when choosing someone to handle what might be your largest investment? Your exchange can only be done once. Make sure it's done right the first time. Today, with the guidelines of the Exchange Regulations and the help of a properly trained and experienced professional qualified intermediary, the taxpayer (seller) can sleep nights when using the "best kept secret in real estate-real estate exchanges." Russell Gullo, CCIM, CEA, is a certified exchange advisor, president of R. J. Gullo & Co., Inc., West Seneca, N.Y.