We are in the business of buying and selling grocery store anchored commercial real estate (CRE).  Each time we buy or sell a property, there is a significant amount of paperwork that must be completed, either by us or by someone else, in order to ensure the transaction is executed properly.  

In this article, we are going to discuss one particularly important document known as the preliminary change of ownership report or PCOR.  We will describe what it is, why it is important, how to complete one, and its impact on a commercial real estate transaction.  By the end, readers will have the information needed to evaluate this report as part of a typical CRE transaction.

At First National Realty Partners, we have an entire team of lawyers, paralegals, and transaction specialists whose job it is to ensure that all of the paperwork in a transaction is handled correctly.  This effort ensures that our investors are protected against unwanted surprises.  To learn more about our current investment opportunities, click here. 

What is a Preliminary Change of Ownership Report?

In order to understand what a PCOR is, it is first important to understand the concepts of deed and title.  Often, these terms are confused for each other, but they are in fact distinctly different.  A property deed is the actual document that transfers ownership of a property from one individual (or company) to another.  A title is a legal document indicating that an individual (or company) has the ownership rights to something.  When discussing the PCOR, it is the deed that matters most.

With that in mind, a PCOR is a document that is completed by the buyer at the time a property transfer is recorded (via deed) with the county recorder’s office or other municipal authority.  It contains information about the property being transferred, individuals involved in the transfer of it, the type of transfer being recorded, the purchase price, and the terms of sale. 

What is the Purpose of the PCOR?

Completing and recording a PCOR every time a property is bought/sold serves as a reminder to a county assessor’s office that it is time to reassess the value of the property for property tax purposes.  To understand why this is important, consider a very crude example.

Suppose that an investor purchased a property for $1,000,000 ten years ago.  At that time, the county’s tax rate was 2% of the property’s value annually, which amounted to $20,000.  Fast forward ten years, the market has appreciated significantly and the property owner has decided to sell the property to realize a gain.  After a short time on the market, the property sells for $2,000,000.  At the 2% property tax rate, the new tax amount would be $40,000.  So, the PCOR is a reminder that the county needs to reassess the current day value so that they can collect taxes on the higher value.  This increased tax revenue can help to fund important municipal priorities like roads, healthcare, and infrastructure.

In short, the PCOR serves as a transaction record that can provide an avenue for a county tax collector to increase tax revenues through reassessment of property values.

How to Fill Out a PCOR 

The information contained within a PCOR is relatively consistent across counties, but it is possible that the formatting may vary slightly.  So, the following description of how to complete the PCOR is intended to be general in nature.  As an example, we will be referring to this PCOR from Los Angeles, California.  Remember, it is the buyer’s (transferee) responsibility to complete the PCOR.

Introductory Section

The first section of the document is used to identify a few key pieces of information including:  

• The Assessor’s Parcel Number used to identify the property being sold 
• Identification of the seller/transferor as well as their telephone number and/or email address
• The street address of the real property and a separate mailing address for which to mail property tax information to.

Transfer Information

In the next section the transferee is required to answer a series of yes/no questions about the type of transfer.  For example, there are questions designed to determine if the transfer is between spouses, family members (children, parents, grandparents), or domestic partners.

In addition, there are a series of questions designed to reveal further information about the property.  For instance, there is a question to determine if the property being transferred is a principal residence or if it creates, terminates, or reconveys a lender’s interest in the property.  Finally, there are another series of questions about leases, energy incentives, or whether or not the property is subject to low income housing requirements. 

Other Transfer Information

This section includes the date of transfer as well as the type of transfer.  Potential options for this include:  purchase, foreclosure, gift, trade or exchange, contract of sale (include date of contract) or sale/leaseback.  Finally, there is a question about whether a full or partial security interest in the property is being transferred.

Purchase Price and Terms of Sale

This section is dedicated to financial information about the sale.  It includes questions about the total purchase price, cash down payment, loan, lender, type of loan (FHA, VA, fixed rate, variable rate), whether there is a balloon payment, closing costs, escrow requirements, commission fees paid, and how the property was purchased (direct from seller, through a broker, etc.).

Property Information

Finally, the last section has questions about the type of property being transferred.  For example, there are options for:  single-family residence, multiple family residence, co-op, condominium, timeshare, manufactured home, unimproved lot, or commercial/industrial.

Again, it is important to note that the formatting of these forms can vary, but the content is generally similar.  So, it is important that investors, buyers, and lawyers ensure that they are completing the right form for the jurisdiction in which the property is located.

How Long You Have To Support a Change of Ownership

In terms of timing, the PCOR must be completed prior to the recording of the deed.  If it is not, the county assessor will send a “change of ownership” document to the transferee.  This must be filed within 45 days of the county assessor’s request or they may face a significant monetary penalty.

How a PCOR Affects Commercial Real Estate Investing

From a commercial real estate investment standpoint, there are two ways that the PCOR can impact a transaction.

First, as described above, failure to complete one can result in monetary penalties.  

Second, and perhaps most importantly, the transfer of property triggers a re-assessment of property value.  This usually means that the tax bill  goes up.  Failure to account for this in the property’s proforma can cause returns to be materially different than originally projected.  For example, if the proforma originally called for taxes to be $25,000 a year, but it turns out that they are actually $50,000, returns can suffer materially.

Summary of Preliminary Change of Ownership Report

The Preliminary Change of Ownership Report is a document that is created and filed with municipal authorities at the time of sale.  It contains key information about the buyers (name, phone number, etc), the property (address, occupancy, condition of the property, etc), and additional information as needed.

Once filed, the document acts as a reminder for the county tax assessor to reassess the property’s value and adjust their taxes accordingly.

Failure to file the document can result in monetary penalties for the buyer.  In addition, failure to account for the potential change in taxes can have a material impact on investment returns.

Interested In Learning More?

First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms. With an intentional focus on finding world-class, multi-tenanted assets well below intrinsic value, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in.

If you would like to learn more about our commercial real estate investment opportunities, contact us at (800) 605-4966 or info@fnrealtypartners.com for more information.