August 23rd, 2021 at 12:02 pm
Multiple Choice Question: You are the buyer’s agent writing a new offer. Your buyer wants to use the proceeds from the sale of another property to buy this property as the upleg of a 1031 tax exchange. What C.A.R. standard form(s) should you include with your buyer’s offer? Pick the best answer:
A. Buyer’s Intent to Exchange Supplement (BES).
B. Contingency for Sale of Buyer’s Property (COP).
C. Both A and B, because the BES is merely a letter of intent, whereas the COP is a sale contingency.
D. Either A or B.
Answer: Answer A is the correct answer. The BES is the proper C.A.R. form to use when a buyer wants to effectuate a 1031 exchange. The BES is not a letter of intent. In paragraph 1C of the BES, the buyer should check a box to indicate what will happen to this purchase transaction if the other property does not close escrow in a timely manner through no fault of the buyer: (1) This transaction shall close anyway; (2) This transaction shall be extended for a certain number of days; or (3) This transaction shall be cancelled and the buyer’s deposit returned to the buyer.
Just FYI, C.A.R. also has a standard-form Seller’s Intent to Exchange Supplement (SES) to use when a seller wants to effectuate a 1031 exchange.
Answers B and D are wrong. Using the COP instead of a BES for a 1031 exchange is generally a bad idea. The COP provides a seller with many possible ways to cancel, which are generally unworkable for a buyer trying to effectuate a 1031 exchange. Additionally, among other things, the BES requires the seller to cooperate with the buyer’s 1031 exchange, whereas the COP does not.
Answer C is also wrong. The BES and COP should not be used together because they have contradictory terms. Moreover, as stated above, the terms of the COP are generally unworkable for a buyer effectuating a 1031 exchange.
-Thank You to Wayne Woodyard (Regional VP and Coronado Manager) for suggesting this week’s legal tip!
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