Skip to content
interest rates person holding phone

Dual Agency Question: 1031 Exchange Delayed … Who Pays the Buyer’s Rate Lock?

In dual agency, the real estate licensee acts on behalf of both the buyers and sellers, and has fiduciary duty to both parties. Dual agency can be appealing, but sometimes tricky situations arise.

A CRES-insured dual agency member ran into a snag on a sale with a 1031 exchange in an addendum. A 1031 exchange, so named after Section 1031 of the Internal Revenue Code, is basically a swap of investment property used to defer capital gains tax. There are specific rules and timeframes about designating the replacement property as part of a 1031 exchange. In this particular case, the seller was slow in working on the 1031 exchange and requested an extension.

The extension wasn’t long, and the buyers had been willing to agree to the extension, but their rate lock was set to expire before the date of the extension. It would cost $95 a day to extend the rate lock, and the 1031 exchange addendum also stated that the 1031 exchange would happen “at no additional cost to the buyer.”

Our client called CRES ClaimPrevent® Legal Services for advice on this situation.

Add Another Addendum and Pay the Fee

The 1031 sale was part of the contract between the buyer and seller. Since the parties agreed in the first addendum that the 1031 would be accomplished “at no cost to the buyer,” an attorney recommended a second addendum to resolve the issue.

The second addendum should state that closing would be extended to the new date requested by the seller, at sellers’ request, and the sellers would pay the buyers’ rate lock extension of $95 per day from the day the initial rate lock expires until closing.

As part of this process, the real estate licensee must document the transaction in writing. Best practice is to save related emails in the transaction file and to keep clients updated in writing.

Do You Need Advice from the CRES Legal Team?

Sometimes situations start off smoothly and get sticky. If you’re not sure of the next step to serve your buyer and seller without landing in legal trouble, it pays to have someone on hand to answer your questions.

If you’re a CRES real estate Errors and Omissions member, you can call CRES ClaimPrevent® Legal Services 7 days a week for free expert legal advice. Members receive a prompt response from an experienced attorney—within 4 hours or the next business day. In addition, our legal services confirm recommendations in writing. We want to help clients prevent claims, and this is just one of the ways we do that.

Can we help you with your E&O policy? Learn more about real estate E&O in your state.

Back To Top