To Exchange Is Minimum Professional Advice

This article has two messages. The first is for our mutual benefit; the second is intended for Realtors.

First, the matter of real estate closing, and our mutual advantage. I see too many closing documents, including closing statements, that have some aspect of their content that contains a glaring, stupid error. Sometimes the error is mine; sometimes someone else should claim it. But the intent here is not to point a finger for making a mistake, (if we go all the way through a closing without somebody seeing a relatively obvious error, then we all share the mistake) but to plead for reciprocal best efforts to fix problems, at the earliest possible occasion.

If for instance, if the real estate commission is calculated incorrectly, you can bet that at some point someone will be aware of that. Then they will come back to the closing agent and do everything they can to get it corrected, and the closing agent will do everything he or she can to help, of course. Everyone will look stupid; everyone will be embarrassed; and the mistake will cost every one of us time and money, if only because everyone will come back to the closing table to correct errors. The intent of this story is simple: there is no dumb question before or even during a closing. The dumb question is asked after every one gets back in his office and in the quiet of things, after closing, someone discovers an error that could easily have been seen earlier.

This story causes me to repeat an observation I’ve made here many times. We are all in this world together, and among Realtors and Closing Agents, our world is a small one. We treat each other with greatest courtesy when we ask questions about things we don’t understand. The fact that we ask, and the way we ask, tells a great deal about who we are.

The second point I intend in this article is for Realtors, not for closing agents. Any time an owner sells investment property, that owner will know, sooner or later, the tax effect of the sale. If an owner completes a closing of investment property and walks away with cash, only to learn later that he could have avoided or at least delayed a significant tax payment by a 1031 tax free exchange, the client will wonder why his agent did not tell him about a real estate exchange. It is not the purpose of this article to discuss exchanges. But the Realtor must know when to advise a client that one is possible.

Any sale of appreciated property, whether before or after replacement real property is identified, sets up the possibility of a tax-free exchange. I refer my clients regularly to Andy Gustafson at Old South Exchange Services to provide advice, or to act as intermediary. There are others who do that also, and the important thing is not that any reader of this article understand the finer points of exchanging, but that they recognize the circumstances in which an exchange would help the client. Look first for the sale of property used for investment or for trade or business. Second, look for gain on that property. Third, advise the client of the potential for trade.

It isn’t important that you know what Andy knows. It is only important that you advise your client to call him, or a lawyer or accountant who can serve as the intermediary, to answer exchange questions. If you don’t tell your client to simply “call Andy”, someone else will, and it may be too late to help your client.

If sleeping well is important, find a great closing agent, and convince him (or her) how wonderful you think he is. Lie if you must.