Updated August 17, 2026
A qualified intermediary holds your entire sale proceeds — frequently several million dollars — for up to 180 days, and the industry is far less regulated than most sellers assume. There is no federal licensing requirement to become one. That combination is why choosing a QI badly is one of the few 1031 mistakes that can cost you not just the deferral but the money itself, and why it deserves more than ten minutes and a referral.
A 1031 exchange requires that you never take constructive receipt of the proceeds. If the money touches your account, or you have a right to direct it, the exchange fails and the sale is taxable.
The intermediary exists to prevent that. They:
Engage one after closing and there is nothing to fix. The exchange is already gone.
The rules disqualify anyone who is your agent. Specifically, a person who has acted as your employee, attorney, accountant, investment banker or real estate agent within the two years before the transfer is generally disqualified, as are related parties.
Which means your own CPA cannot hold the funds. Neither can your attorney, if they have acted for you. This surprises sellers who assume the most trusted professional in the room is the right custodian — the rules say the opposite, precisely because independence is the point.
How are funds held? The answer you want is a segregated, qualified escrow or trust account in your name or your exchange's name — not commingled in the QI's general operating account. Commingling is legal and common and it is exactly what leaves you an unsecured creditor if the firm fails.
What is the fidelity bond and the errors-and-omissions coverage, in dollars? Ask for the figures and the carrier, not a reassurance that they are "fully bonded." Then compare the bond against the size of your exchange. A $1 million bond behind a $9 million exchange is not coverage.
Who signs to move money? Dual authorisation, with your written instruction required, is the standard to look for.
How long have you been doing this, and how many exchanges a year? Longevity through a downturn matters more than volume.
Are you a member of the Federation of Exchange Accommodators? Not a guarantee, but it signals a firm operating to industry standards.
Will you be my contact for the whole exchange? Continuity matters when day 44 arrives.
What is the fee, and how is interest on my funds handled? Some QIs retain the interest earned on your money as part of their compensation. That is common and it is not automatically wrong — but you should know it and factor it into the real cost.
QI failures are not hypothetical. The industry has seen firms collapse holding client exchange funds, and because a QI is not a bank and generally not licensed, the funds may not be protected in the way a seller assumes. Exchangers in those situations have lost both the deferral and the principal.
The exposure is asymmetric in an unusual way: you are trusting a lightly regulated counterparty with the entire proceeds of your building, for months, for a fee that is trivial relative to the sum held. Spending an hour on diligence is proportionate.
An institutional QI — one affiliated with a bank or title company — typically offers stronger balance-sheet protection and segregated accounts, sometimes at a slightly higher fee. For a large exchange this is usually the right trade.
A specialist independent QI with a long track record, real bonding, segregated accounts and genuine expertise can be excellent, and often better on complex structures like reverse or improvement exchanges.
What to avoid: a firm that will not confirm segregation in writing, will not name its bond amount, holds funds in a general operating account, or has been operating for a short time.
Engage the QI before the relinquished property closes. Ideally at the point you accept an offer, so the exchange language is in the purchase agreement and escrow has clean instructions.
Every other mistake in an exchange has some remedy. Closing without a QI in place does not — the proceeds went to you, and the sale is a sale.
Can my CPA or attorney be my qualified intermediary?
Generally no. Anyone who has served as your agent — attorney, accountant, real estate agent, employee — within two years before the transfer is typically disqualified, as are related parties. Your CPA should advise on the exchange; someone independent should hold the money.
How much does a QI cost?
A modest fixed fee relative to the transaction, plus possible per-property charges on multi-property exchanges. Some firms also retain the interest earned on your funds. Ask for the full picture, including the interest treatment, before engaging.
What happens to my money if the QI goes out of business?
That depends entirely on how the funds were held. Segregated in a qualified escrow or trust account, they are considerably better protected. Commingled in the firm's operating account, you may be an unsecured creditor. This is the reason the segregation question is the first one to ask.
Do I need a different QI for a reverse exchange?
A reverse exchange requires an exchange accommodation titleholder to park a property, which is a different and more complex service. Not every QI offers it competently — ask specifically about their reverse-exchange experience before assuming.
Can I change QIs mid-exchange?
It is possible but complicated and risky. Choose carefully at the start instead.
The intermediary is the only party in your exchange who holds the money, and the industry's regulation does not match that responsibility. Ask three questions before you engage anyone: are my funds segregated, what is the bond in dollars, and who has to authorise a transfer. A firm that answers all three clearly and in writing is very likely fine. A firm that deflects any of them is telling you something.
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