The Qualified Intermediary Role

A qualified intermediary, sometimes called an accommodator, is required for nearly every 1031 exchange. The qualified intermediary holds the proceeds from the relinquished property sale so the investor never has actual or constructive receipt of the funds, which is a strict requirement of Internal Revenue Code Section 1031. We are not a qualified intermediary and do not hold exchange funds. We coordinate with qualified intermediaries on behalf of San Francisco, CA investors to keep escrow, lending, and identification workstreams synchronized.

Why Constructive Receipt Rules Exist

If an investor receives sale proceeds directly, even briefly, the exchange generally fails entirely, not just for the amount received. This is why the qualified intermediary must be engaged before the relinquished property closes, with exchange documents in place at or before the closing table. A common and costly mistake among San Francisco, CA investors is deciding to pursue a 1031 exchange after escrow has already closed and proceeds have been disbursed. Once a closing has occurred without a qualified intermediary in place, the transaction generally cannot be converted into a valid exchange after the fact.

The qualified intermediary also cannot be the investor's employee, agent, or a party who has acted as the investor's attorney, accountant, real estate agent, or broker within the two years preceding the exchange, with limited exceptions. This disqualified person rule protects the independence of the exchange structure. We help investors confirm that their chosen qualified intermediary meets these independence requirements and holds proper fidelity bond and errors and omissions coverage, since exchange funds are sometimes held for extended periods and qualified intermediary insolvency has caused real losses for investors in past market cycles.

What the Qualified Intermediary Actually Does

The qualified intermediary prepares the exchange agreement, receives and holds the relinquished property proceeds, receives the investor's written identification of replacement property, and uses the held funds to acquire the replacement property on the investor's behalf before conveying it to the investor. Throughout this process, we coordinate between the qualified intermediary, the escrow or title company handling the San Francisco, CA closing, the investor's lender if replacement financing is involved, and the investor's CPA to keep the forty-five day identification and one hundred eighty day closing deadlines on track.

Selecting a qualified intermediary is one of the most consequential decisions in the exchange, since the intermediary controls the investor's sale proceeds for the duration of the exchange period. We help San Francisco, CA investors evaluate qualified intermediary options based on how exchange funds are held, whether funds are commingled with the intermediary's operating accounts, and the intermediary's track record. Because we do not hold funds and are not the qualified intermediary ourselves, our role is limited to coordination, documentation support, and deadline tracking on the investor's behalf.