The short answer
An exchange agreement is the written agreement between you and a qualified intermediary under which the intermediary, as the agreement requires, acquires and transfers your relinquished property and acquires and transfers replacement property to you. The regulations name it and make it the condition of the qualified intermediary safe harbor, together with the clause that expressly limits your rights to the money it holds. Everything else in it, from fees to where the money sits, is contract, but those terms decide what happens if something goes wrong.
At a glance
| Where it lives | Reg. section 1.1031(k)-1(g)(4)(iii)(B) |
|---|---|
| Required clause | Express limits on your rights to the funds, as set out in (g)(6) |
| Who can sign as QI | Anyone other than you or a disqualified person |
| If the QI fails | Rev. Proc. 2010-14 may let gain be reported as payments arrive, if its conditions are met |
The regulation defines the agreement by what it makes the intermediary do and what it stops you from doing.
Reg. section 1.1031(k)-1(g)(4)(iii) describes a qualified intermediary as a person who is not you or a disqualified person and who enters into a written agreement with you, the exchange agreement, and as required by it acquires and transfers both properties. Paragraph (g)(4)(ii) adds that the safe harbor applies only if that agreement expressly limits your rights to receive, pledge, borrow or otherwise obtain the benefits of money held by the intermediary, as provided in (g)(6).
The (g)(6) limitations set the only permitted release points: after the identification period if nothing was identified, after you receive everything you are entitled to under the agreement, or after a written contingency beyond your control. The agreement can be stricter than that, but not looser.
Hypothetically, the commercial clauses decide what you get back and when.
Hypothetically, you sign an agreement for a $900,000 sale that sets a flat fee, holds the money in a bank account in the intermediary's name, and pays you the interest. Publication 544 says that when the facilitator pays you all earnings you take into account all items of income from the exchange funds, and when it keeps some you are treated as having lent it the money, with imputed interest if the loan is below market. See interest on exchange funds.
Commissions, prorated taxes, recording fees and title charges that appear on a typical closing statement are disregarded in testing the restrictions under Reg. section 1.1031(k)-1(g)(7), which is why commissions and title charges can be paid from the funds at closing. Whether a particular cost changes your gain is a separate question; see exchange fees, deductible or basis. Run your own numbers with your CPA.
It bites when the intermediary fails or you try to end the agreement early.
If the intermediary defaults because of bankruptcy or receivership, Rev. Proc. 2010-14, cited in the Form 8824 instructions, lets you, if you properly identified replacement property and failed to finish solely because of that default, report the gain in the year or years payments are received. Where the money is held and whether it is segregated matter more than the fee; see if a QI goes bankrupt or steals the money.
Firing the intermediary does not release the cash. Reg. section 1.1031(k)-1(g)(4)(vi) disregards rights you have under state law to terminate or dismiss the qualified intermediary, and the safe harbor ends only when you gain an immediate or unrestricted right to the money. In a reverse exchange the exchange accommodation titleholder may also sign as your qualified intermediary under section 4.03(1) of Rev. Proc. 2000-37.
Related questions
When do I have to sign the exchange agreement?
Before the relinquished property transfers. The intermediary must acquire and transfer the property as required by the agreement, and the contract assignment and written notice must happen on or before the transfer, so an agreement signed after closing comes too late. See assignment of contract to the QI.
Can my attorney or accountant sign as the intermediary?
Generally not if they acted as your attorney, accountant, broker or real estate agent within the two years before the first transfer, because that makes them a disqualified person; services for the exchange itself and routine title or escrow services are excepted. See whether an attorney, CPA or agent can be the QI.
Does the agreement have to say who keeps the interest?
The regulations require express limits if you are entitled to interest or a growth factor, and Publication 544 taxes the earnings differently depending on whether you receive all of them or the facilitator keeps some, so the clause should be clear.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.