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I currently have my house listed for sale. A potential buyer came by today, liked the property and, as he was leaving, asked if I would sell as part of a 1031 exchange.

I understand why he would want to do a 1031 exchange. However, I don't understand why I would care that that's what he's doing.

My house is my primary residence, I'm looking to get into another primary residence, I've been in my home for over two years - all standard stuff to me.

Will his 1031 exchange cause complexity or delays in my selling my house to him?

Essentially, why would I care that the buyer is doing a 1031 exchange when buying my house?

Chris W. Rea
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Dave D
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3 Answers3

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In a 1031 exchange the money would not come from the seller but from an intermediary that's holding the proceeds of the property they sold, as such there might be mention of the 1031 exchange in the contract noting the name of the intermediary or just that an intermediary will be used. I don't know if this is required/customary in your region.

A company in my state that acts as an intermediary (First American Exchange Company) says:

In addition, the taxpayer must provide written notice of that assignment to all parties to the contract, and it is usually advisable to get the other parties to acknowledge they have received the notice. The assignment and notice are required in connection with both the sale of the relinquished property and the purchase of the replacement property.

It doesn't have impact on the selling process, but perhaps some sellers don't want to sell to landlords and agents have found its best to ask up front, rather than having offer declined when they see the 1031 language in the contract.

There is a timing component to 1031 exchanges but it is likely not the reason they mention it. They have a window of time between selling and identifying/closing on the replacement property, but it exceeds standard closing timelines.

If the buyer is running out of time to identify potential properties it would give you some extra leverage.

Hart CO
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A potential buyer came by today, liked the property and, as he was leaving, asked if I would sell as part of a 1031 exchange.

I understand why he would want to do a 1031 exchange. However, I don't understand why I would care that that's what he's doing.

They are asking for a couple of reasons:

  1. they have to identify the property by a 45 day deadline. If they are running out of time, they may need you move quickly. They don't want to identify the property and then something later leads to them wanting to cancel the transaction. They might want to get the home inspection done quickly, so they can understand if there are any problems. Remember they a still only a potential buyer, they haven't made an offer yet, and you haven't made a counter offer.

  2. They want to know if there is anything in your schedule that will delay the process. Do you have to find another property? How long will that take?

mhoran_psprep
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Will his 1031 exchange cause complexity or delays in my selling my house to him?

Shouldn't affect you at all.

Essentially, why would I care that the buyer is doing a 1031 exchange when buying my house?

You wouldn't.

littleadv
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