Fee models vary widely throughout the 1031 exchange qualified intermediary industry. It is crucial for investors to carefully conduct thorough research and compare the fee structures of different qualified intermediaries (also referred to as accommodators or facilitators) before selecting one for their 1031 exchange transaction. By carefully examining and understanding all costs associated with the administration of a 1031 exchange, investors can make better informed investment decisions.

In addition to set-up fees and service charges, investors should also consider other potential costs such as interest income retained by the qualified intermediary, additional transaction fees and per property fees, and any hidden charges that may arise throughout the 1031 exchange process. By taking the time to compare and analyze the fee structures of different qualified intermediaries, investors can avoid unexpected costs and select a service provider that aligns with their budget and needs.

Transparency and communication are key in this process, and investors should not hesitate to ask questions and request detailed information about fee structures from potential qualified intermediaries. Ultimately, by conducting thorough due diligence and comparing all costs involved, investors can ensure a smooth and cost-effective 1031 exchange process.

Although 1031 exchange fees are part of the due diligence process, they are not the most important criteria in selecting a qualified intermediary.  The industry has no licensing ability or regulatory body to provide oversight of qualified intermediaries.  Few qualified intermediaries have any licensing or regulatory oversight.  Investors should ask qualified intermediaries the following questions to ensure the safety of their 1031 exchange funds:

• Are you directly licensed by any government or regulatory agency, and if so, by whom?
• Do you have any form of government or regulatory oversight, and if so, by whom?
• Are you subject to any form of government or regulatory audit, and if so, by whom?
• Do you have fidelity bond, errors and omissions, financial institution blanket bond and cyber and wire transfer fraud insurance coverages?

When comparing 1031 exchange fees and costs charged by qualified intermediaries, investors should carefully consider the following factors to ensure they are comparing apples to apples:

• Set-up and/or administration fees
• Fees charged per property or additional property fees 
• Interest income paid to the investor (exchangor)
• Interest income retained by the qualified intermediary
• Transactional or service charges (wire transfer, check disbursement, notary, courier fees, etc.) 
• Trustee fees or escrow fees for qualified trust accounts or qualified escrow accounts

This compensation structure is important to ensure that qualified intermediaries are properly compensated to handle transactions responsibly and effectively. Additionally, it helps to protect the interests of the parties involved in the transaction by providing a fair and transparent fee structure.

Some of the factors that may influence the fees and charges applied by a qualified intermediary include the complexity of the transaction, the amount of funds involved, the level of risk associated with the transaction, and the expertise and experience of the qualified intermediary.

It is important for parties engaging with a qualified intermediary to fully understand the fee structure and ensure that it is fair and reasonable for the services being provided. Transparency and communication are key in establishing a good working relationship with a qualified intermediary and ensuring that all parties are satisfied with the services being provided.

When you factor all the above fees, costs, and services charges into the equation, especially the amount of interest retained by the qualified intermediary, you will be able to compare each fee schedule side-by-side to determine which is the best value for your particular situation.

Set-up and/or Administration Fees

Qualified intermediaries typically charge a 1031 exchange set-up or administration fee in the range of $1,100.00 to $1,800.00.  This fee usually includes the sale of one property (“relinquished property”) and the purchase of one property (“replacement property”). Set-up and administration fees typically make up about twenty to twenty-five percent (20%-25%) of a 1031 exchange qualified intermediary’s revenue.

Additional Property Fees

Investors who sell more than one relinquished property or purchase more than one replacement property will generally be charged an additional property fee in the range of $200.00 to $500.00 for each additional property processed in the tax-deferred exchange.

Interest Income Earned on 1031 Exchange Funds

Qualified intermediaries generally deposit and hold investors’ 1031 exchange funds in interest bearing or non-interest bearing demand deposit accounts in commercial banks.  Qualified intermediaries retain all or a portion of the interest income earned on your tax-deferred exchange funds while they are held by the qualified intermediary as part of their compensation. 

This fee structure is actually a very fair and efficient way to compensate your qualified intermediary for the tax-deferred exchange services performed on your behalf commensurate with the level of risk involved.  The larger the tax-deferred exchange transaction the more risk your qualified intermediary is exposed to, and conversely the amount of interest income retained by your qualified intermediary increases in direct relationship to the size of the transaction.

You do need to evaluate the amount that will be retained by the qualified intermediary and the amount that will be paid to you to clearly understand the total amount of fees you are paying to your qualified intermediary, otherwise you will not be comparing apples to apples.

Transactional or Service Charges

Some 1031 exchange qualified intermediaries only include a set-up fee and a percent of the interest income.  There are special charges for more complicated transactional structures, including seller carry-back financing, partnership installment notes (PINs or QI Notes).

A few smaller qualified intermediaries may charge various transactional fees such as wire transfer fees, overnight delivery or courier charges, facsimile costs, etc.  It is important to know and understand the total fee structure before making a final decision on which qualified intermediary to choose.

Qualified Trust or Qualified Escrow Account Fees

It is critical that qualified intermediaries deposit and hold investors’ 1031 exchange funds in either a qualified trust account (“QTA”) or qualified escrow account (“QEA”).  Qualified intermediaries often charge an additional fee for a QTA or QEA.  Exeter 1031 exchange Services, LLC deposits, holds, and safeguards investors’ 1031 exchange funds in separate, segregated, dual-signature qualified trust accounts with Exeter Trust Company at no additional cost.  This makes Exeter 1031 Exchange Services, LLC one of the few qualified intermediaries that has any kind of regulatory oversight. 

Reverse, Improvement, Foreign Property and Other 1031 Exchanges

Safe harbor reverse 1031 exchanges, non-safe harbor reverse 1031 exchanges, reverse 1031 exchanges structured pursuant to the Bartel v. Commissioner case, improvement 1031 exchanges, leasehold improvement 1031 exchanges, foreign property 1031 exchanges, and other more complicated 1031 exchange transactions have significantly higher fees.  The fees, costs and services charges associated with these more complicated 1031 exchange structures vary widely but generally fall into a range of $7,500 to $15,000 or more.