How much does a 1031 Exchange Cost? Here’s How To Avoid being Ripped Off

Last updated on January 31st, 2020 at 07:07 pm

You’ve decided a like-kind exchange is right for your situation. One of the hardest things to find out online is how much does a 1031 exchange cost? This article is your inside scoop on qualified intermediaries and how much they charge. We’ll cover the upfront costs for any 1031 exchange, costs that depend on your situation, and questions you should ask your qualified intermediary.

Factors that can Affect Cost of 1031 Exchange

  • Set up or administrative fees
  • Number of properties being exchanged – Can either be multiple for one, or vice versa
  • Value of properties being exchanged
  • Interest income the Qualified Intermediary keeps
  • Interest income paid back to you
  • Service Fees – Wire transfers, title/deed transfers, check disbursement fees
  • Fees for qualified trust accountant or escrow service
  • Type of 1031 Exchange – Reverse exchanges are typically more, though you don’t lose interest income

1031 Exchange Cost – Set Up/Administrative Fee

While the costs for a 1031 exchange can vary based on your situation, almost any exchange will start at $700-$1,100. This covers the administrative parts of any 1031 exchange from a reputable qualified intermediary. This fee includes gathering information about your scenario, administrative work for your exchange agreement, and documenting the identified replacement property. After that, the qualified intermediary will also work with the closing agents for your old and new properties, handling funds for both, and coordinating deeds with the title company.

This fee usually covers one relinquished (old) property and one replacement (new) property. Each additional property will add between $300-$400 each.

Interest Income – Little Known, Big Bucks

1031 exchange cost can be more, if you consider interest income
He who doesn’t know the power of compounding interest, pays it.

An open secret of the qualified intermediary industry is that set up fees only account for around 1/3 of revenues. The other 2/3 comes from interest income, which is the interest that’s earned while the qualified intermediary holds your funds. While this is fairly standard, it can mean you’re paying much more than you may realize.

Let’s say you work with a qualified intermediary when you sell a $500,000 property on July 1. Your qualified intermediary holds your funds from the sale. It takes the full 180 days to find a replacement, which you do on December 28. During that time, the qualified intermediary is earning interest on your $500,000.

Even if we conservatively estimate the interest rate is 2%, they’ve earned nearly $5,000. While that’s not a cash expense that you have to pay for, it is income you could have kept for yourself and is a real opportunity cost of a 1031 exchange. For example, if you sold the property and kept the money in a bank account while shopping for a new one, you would have made the $5,000 in interest income.

We encourage investors to ask questions about interest income. Specifically, what portion of the interest income will you get back, and what portion does the QI keep? The higher property value, the higher this interest income cost is.

Types of 1031 Exchanges – Costs

The type of 1031 exchange you do has a large impact on the price. We’ll walk through the four main types and an estimated total cost for each.

Delayed Exchange

This is the most common type of exchange,, and it’s safe that most are referring to this type when they talk about a 1031. This is when you sell a property, find a like-kind replacement within 45-days, then close on its replacement within 180-days. The cost estimates in this article assume you are doing a delayed 1031 exchange. We estimate that relinquishing and replacing one property in a delayed exchange will have a total cost between $3,000-$8,500. This accounts for the income your qualified intermediary keeps and varies based on the property’s value.

Simultaneous Exchange

This is a 1:1 exchange where you and another party do a straight up trade of properties. While you would likely not need a qualified intermediary, this type of exchange is very difficult to pull off. You’d have to find a seller who is willing to transact on an exact date. Additionally, both properties would have to be worth an identical amount, AND you’d need the same amount of equity in the property. Sorry, but it’s not likely! If you do manage to pull this off, the cost would be minimal, around $600-$800.

Built to Suit or Construction Exchange

If you’ve identified a great property, but it’s worth less than your current property a “build to suit” exchange is a great fit. In this type, you can add on to the property’s value through construction so it matches the value of your current property. For example, say your rental is worth $600,000 and you find a duplex worth $400,000. Under a build to suit exchange, you can hire a contractor to make $200,000 worth of improvements, all tax free.

Build to suit exchanges are much more costly than a typical 1031 exchange, and varies based on timing, risk, property values, and construction costs.

Reverse 1031 Exchange

A reverse exchange is easier than it sounds – instead of selling your old property then buying a new one, you buy a new property before your old property is sold. This is used commonly in seller’s markets where there is more demand for properties than supply. It also reduces the risk that you don’t find a good new property 45 days after selling your old property.

Under a reverse 1031 exchange, there is no interest income earned by the qualified intermediary because you are buying a new property before selling the old. Because they are not holding your funds from the sale in a bank account earning interest, there is no interest income.

Due to this, qualified intermediaries charge significantly more ($3,000-$8,000) for a reverse exchange. We strongly encourage investors to weigh if a reverse 1031 exchange makes sense for their situation. While it’s a higher out of pocket cost, you make up for it by not giving up interest income. As shown in the example above, interest income can earn you up to $10,000 in 6 months time if your property is worth $1 Million or less.

If your property is worth more than this, we highly suggest running the numbers on a reverse 1031 exchange. Also, it gives you more flexibility. Many investors prefer finding the replacement property before selling the existing property. This is because it’s easier to sell your property at or below market than to find a great deal within a certain value.

Nickels and Dimes

There are many small tasks that can add up if not monitored. These include wire transfers, title transfers (if your qualified intermediary is also a title company), and escrow services. Most qualified intermediaries include this in their base rate, but some don’t. Definitely ask about additional costs! These can run between $100-$200, but we’ve seen up to $1,000 in additional fees.

no one wants to be nickle'd and dime'd during their 1031 exchange cost analysis

Rush fees are necessary when an investor is coming up on a deadline (usually the 45-day identification period or 180-day completion period) and needs their qualified intermediary to expedite the exchange. The majority of qualified intermediaries charge extra for this (usually around $200-$400), but it’s better than paying taxes!

How to choose a Qualified Intermediary

There are hundreds of qualified intermediaries throughout the United States. Unlike bankers, stockbrokers, and insurance agents, the QI industry is not regulated by the federal government. While some states have put regulations in place, the majority have not. Here are some things you should make sure your qualified intermediary has, along with questions you should ask.

Things your Qualified Intermediary should have

  • Certificate from the Federation of Exchange Accommodators (FEA) to be a “Certified Exchange Specialist
  • Fidelity or Surety Bond Coverage – Fidelity bonds cover the exchange if funds can’t be recovered due to fraudulent activity, theft, or employee wrongdoing. Surety bonds cover you if your QI declares bankruptcy
  • Errors and Omission Coverage – If you or another client suffer a loss due to a QI’s negligence, ensure your QI has enough insurance coverage for a claim or lawsuit
  • 10+ years of experience in the industry. Leading up to the Great Recession there were many “fly by night” 1031 exchange operators. Look for a proven track record and experience weathering a downturn
  • Separate Accounts – Your funds should be held in either a Qualified Trust Account (QTA) or Qualified Escrow Account (QEA). This helps prevent the risk of embezzlement or fraud. You should make sure that your funds aren’t commingled with other clients. This way, there are two signatures before any funds are moved – both yours and your QI’s.

Questions to ask a Qualified Intermediary

  • What kind of experience do you have? How long have you been in business?
  • Do you have experience with situations similar to mine?
  • How much of the interest income do you keep? How much will I get back?
  • Do you require an exclusive contract?
  • Can you help me find a replacemrent property? How well do you know my market?
  • What kind of insurance coverage, fidelity and surety bonds, or guarantees do you have?
  • Are you a member of the Federation of Exchange Accommodators (FEA)?
  • How and where will you hold my funds? Will they be commingled with other clients’ funds?
  • Can you provide me a written copy of your internal controls?
  • How do you price your services? Are there any additional fees?


As you can see, there are many factors that determine the cost of a 1031 exchange. While price is always important, it should not be the deciding factor in choosing a qualified intermediary. The rules are so complex that ensuring your QI has enough experience for your scenario is critical. In addition, you should ensure your QI has implemented safety measures such as fidelity and surety bonds, insurance, and separate FDIC-insured accounts. If you are ready to find the best 1031 exchange company for your situation click here.

Call Now ButtonCall Now (949) 409-6585