Once you have a shortlist of potential consultants, it is time to start the interview process. The right professional will do more than just process paperwork; they will be a strategic partner who protects your interests. Think of this as a job interview where you are the hiring manager. Your goal is to find someone with the right expertise, a commitment to security, and a communication style that works for you.
How do you ensure IRS compliance?
This is arguably the most important question you can ask. A mistake in a 1031 exchange can lead to the entire transaction being disqualified, triggering a significant tax bill. Your consultant should be able to clearly explain their process for maintaining strict IRS compliance. Ask them if they have a written internal policy that details their procedures for handling exchange documents and deadlines. A proactive consultant will provide you with a clear timeline, send reminders for critical dates, and review all documentation for accuracy.
How are my funds protected during the exchange?
During a 1031 exchange, a Qualified Intermediary holds your sale proceeds before you acquire the replacement property. You need to know exactly how a consultant and their affiliated QI keep that money safe. Ask if they use a Qualified Trust Account or a Qualified Escrow Account, which are specifically designed to keep your funds separate from their operating capital. You should also inquire about their insurance policies, such as errors and omissions coverage and a fidelity bond. A reputable consultant will be transparent about these measures and should be able to provide documentation of their security protocols.
Can you provide client references?
Hearing directly from past clients offers a glimpse into what it is actually like to work with a consultant. While online reviews are helpful, a direct conversation can provide more nuanced insight. Ask for references from clients who have completed exchanges similar to yours, whether in property type, size, or complexity. Speaking with their past clients or referral partners can help you gauge their responsiveness, problem-solving skills, and overall professionalism throughout a real transaction, not just during the initial sales pitch.
What does your fee include?
While cost should not be the only factor in your decision, you need a clear understanding of the fee structure. Ask for a detailed breakdown of all costs associated with the exchange. Are there any additional charges for complex transactions, wire transfers, or administrative tasks? A transparent consultant will provide a straightforward fee schedule with no hidden surprises. This is also a good time to discuss the value they provide, since a low-cost provider might offer minimal support, while a full-service consultant’s fee reflects their strategic guidance in structuring the deal to maximize tax deferral and avoid errors.
Red Flags to Watch For During the Interview
Just as there are qualities to look for, there are warning signs that should give you pause before you sign an engagement letter with a consultant. Learning to spot these red flags early can save you from a much more painful conversation later in the process.
Vague answers about fund custody
If a prospective consultant cannot clearly explain where your money will sit during the exchange, that is a serious concern. You should hear a specific answer, such as a segregated Qualified Trust Account, along with a clear description of the insurance or bonding that protects it. A consultant who deflects this question or gives you a generic answer about industry standards has not earned your trust yet.
Pressure to skip the interview process
A confident, experienced consultant welcomes questions because they know their process holds up to scrutiny. Be cautious of anyone who suggests you do not need to compare options, rushes you toward signing paperwork, or implies that asking detailed questions will slow down your transaction. The 45-day and 180-day deadlines are real, but they do not justify skipping basic due diligence on the people who will be handling your funds.
No written fee schedule
A verbal quote is not enough for a transaction of this size. Ask for the fee schedule in writing, including what happens if your exchange becomes more complex than originally anticipated, such as adding a second or third property to your identification list. A consultant who resists putting pricing in writing is not being fully transparent about the total cost of the engagement.
Limited experience outside routine transactions
Some consultants handle straightforward exchanges well but have limited experience with reverse exchanges, improvement exchanges, or exchanges involving multiple owners or entity structures. If your situation involves any of these complexities, ask directly how many similar transactions the consultant has managed and what specific challenges came up. A consultant who has not encountered your scenario before may still be capable, but you deserve to know that going in rather than discovering it midway through your 45-day window.