TERMINOLOGY USED WITH REAL ESTATE ExchangeS

There is an old saying, "if you want to walk the walk, you have to talk the talk". Well this saying pertains to all professionals within any business including the business of Real Estate Exchanges.

The following is an overview of terms that pertain to the concept of Real Estate Exchanges. Although there is no uniform terminology for Exchanges in the real estate industry, or among lawyers or accountants with the adoption of the new Regulations, issued May 1, 1991, uniform definitions and usage have developed regarding certain terms throughout the United States.

The Regulations define the party seeking non-recognition treatment in an Exchangeas the "taxpayer" and within the real estate industry the taxpayer is often referred to as the "exchangor".

The Regulations refer to the property that the taxpayer seeks to dispose of in the Exchangeas the "relinquished property". It’s also called the taxpayer's property, the Exchangeproperty or the down-leg property. The Regulations define the property that the taxpayer seeks to acquire in the Exchangeas the "replacement property". The replacement property may also be labeled the target property or the up-leg property.

The purchaser of the relinquished property is commonly called "the buyer" and the seller of the replacement property is commonly called "the seller".

The individual used to facilitate the real estate Exchangeunder the Regulations is called a "Qualified Intermediary". This individual cannot be the taxpayer, or an agent of the taxpayer or any one called a "disqualified person" under the Regulations. It is recommended that when picking a Qualified Intermediary that you look for someone with a proven track record, who has special training and acts as a professional qualified intermediary on a full time basis.

Non-simultaneous Exchanges are referred to as delayed Exchanges, Starker Exchanges or deferred Exchanges. Such Exchanges are defined as "deferred Exchanges" under the Regulations. The use of the term "deferred" to mean a non-simultaneous Exchangeis confusing because all Exchanges qualifying under Internal Revenue Code, Section 1031 (whether simultaneous or non-simultaneous), involve the deferral of income tax.

As a consequence of different terms being used in different parts of the country, misunderstandings frequently arise in Exchangetransactions with parties of the transaction using different terminology. Thus, it is important that all Exchangedocuments correctly and uniformly identify the parties, their roles, and the properties in the Exchange. An Exchangediagram (format) is helpful to ensure that all parties understand who are the participants, what are the properties, what are the parties roles, and what are the steps that will be taken to complete the Exchange.