Both when buying or selling a property, the counter-party must be informed of the intention of your client to perform a 1031 exchange. The wording in the contract is usually placed in the Special Provisions section of the contract, with the following wording, or very similar to it: Seller is aware that Buyer intends to perform a 1031 Tax Deferred Exchange pursuant to Section 1031 of the Internal Revenue Code. Seller accordingly agrees to an assignment of the rights under this contract by the Buyer to (Name of Qualified Intermediary), a Qualified Intermediary. Seller agrees to cooperate in such exchange at no cost or liability to Seller.
Sometimes the other party, or their agent, is completely unfamiliar with what a 1031 exchange is. Here, it is important for your Realtor working on your behalf to be able to explain what it is in easy to understand terms, rather than relying on them to google it, and get lost in something that seems complicated, and subsequently shy away from your offer, assuming you are the Buyer in this case.
I usually explain it by stating that the transaction will operate in exactly the same way as an ordinary transaction would, and will not affect the counter party in any substantial way. The only difference that they will see is where the money comes from - the QI instead of the buyer themselves. I simply explain that this QI is acting on behalf of the buyer, and must follow the buyer's instructions in dispersing the funds, which belong completely to the buyer. All other facts of the contract remain the same.
For a seller doing a 1031, it is just a matter of putting the wording in the contract. Nothing is really seen differently from a buyer's side in that case, except for some wording on the HUD-1 settlement statement. I usually just explain that this wording must be put into the contract to show legal intent of the seller to do an exchange, and nothing more than that. It will not affect the transaction.
Sometimes the other party, or their agent, is completely unfamiliar with what a 1031 exchange is. Here, it is important for your Realtor working on your behalf to be able to explain what it is in easy to understand terms, rather than relying on them to google it, and get lost in something that seems complicated, and subsequently shy away from your offer, assuming you are the Buyer in this case.
I usually explain it by stating that the transaction will operate in exactly the same way as an ordinary transaction would, and will not affect the counter party in any substantial way. The only difference that they will see is where the money comes from - the QI instead of the buyer themselves. I simply explain that this QI is acting on behalf of the buyer, and must follow the buyer's instructions in dispersing the funds, which belong completely to the buyer. All other facts of the contract remain the same.
For a seller doing a 1031, it is just a matter of putting the wording in the contract. Nothing is really seen differently from a buyer's side in that case, except for some wording on the HUD-1 settlement statement. I usually just explain that this wording must be put into the contract to show legal intent of the seller to do an exchange, and nothing more than that. It will not affect the transaction.
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