The Truth About Real Estate Commissions: Why the System Wasn’t Broken, Yet They Tried to Fix It Anyway.

What Is the Path Forward?

Since 1913, when the National Association of Real Estate Exchanges (now the National Association of Realtors) standardized real estate commissions based on a home’s purchase price, countless Americans have achieved the dream of homeownership. This system allowed buyers—many with limited savings—to navigate the complex process of purchasing a home with professional assistance, costs seamlessly integrated into the transaction. Recent changes driven by attorneys, judges, and the Department of Justice have disrupted this framework, and I believe the consequences are detrimental to buyers and the market. Let me explain why and propose a path forward to adapt to this new reality.

The Financial Reality for Most Americans:A 2024 Forbes Advisor study reveals that 58% of Americans have less than $5,000 in savings, and 11% have between $10,000 and $49,999. For most, the intricacies of locating, negotiating, inspecting, and closing a home purchase are overwhelming. Without professional guidance, homeownership would be out of reach for many. Historically, the commission structure made this possible by embedding the buyer’s agent’s compensation into the home’s purchase price. Skilled agents could craft offers that satisfied sellers while covering title, prepaid, and closing costs, enabling buyers with minimal savings to enter the market.

This system also fueled a robust housing market. More buyers per listing increased demand, driving home prices upward—a basic principle of supply and demand. When buyer participation drops, so do prices. We’re seeing this in real time in Venice, Florida, where excess supply and fewer buyers have led to a 17% price drop in home sales over the past four months.

Debunking the Myth: “Sellers Pay the Commission”

One of the greatest misrepresentations in real estate is the claim that “sellers pay the commission for both the listing and buyer’s agents.” Let’s be clear: sellers almost never bring money to the closing table. Unless a seller is underwater on their mortgage—an exception, not the norm—the buyer funds everything. The buyer brings cash or a mortgage to cover the purchase price, which includes commissions, title, taxes, and other costs. If the seller doesn’t net enough to meet their goals after these expenses, they reject the offer.

The buyer pays for everything. Always has.

This truth has been obscured for decades, and the recent upheaval in commission structures stems from this misunderstanding. The system wasn’t broken, but legal interventions have fractured it. Now, buyers and agents must navigate a new reality.

Reframing the Buyer’s Mindset

To thrive in this altered landscape, buyers need a mindset shift. Consider this: what personalized service do you receive without paying for it? Plumbers, electricians, doctors, and lawyers all charge for their expertise, regardless of the outcome. Historically, real estate agents were unique—they only got paid if they successfully closed a deal. Imagine a doctor charging only if they cured you. That’s unthinkable, yet it’s been the reality for real estate professionals.

Buyers should embrace paying for their own five-star real estate agent. A skilled professional is worth the investment to secure your dream home. Plus, there are tangible benefits to this approach:

1.  Lower Sales Prices, Lower Taxes: If a seller no longer covers the buyer’s agent commission, they may accept a lower offer. For example, on a $500,000 home, a seller paying $10,000–$15,000 in buyer’s agent commissions might accept $485,000 without that obligation. As a buyer, why inflate the price—and your taxes—just to funnel money through the seller to your agent?

2.  Reduced Property Taxes: Property appraisers factor in recent sale prices when assessing value. A lower sales price could lead to a lower assessed value, saving you on property taxes over time.

3.  Seller Credits for Closing Costs: Buyers can still negotiate for sellers to cover closing costs or provide credits, even in this new commission structure. A skilled agent can draft an offer that includes a seller concession to offset your out-of-pocket expenses, making homeownership accessible for those with limited savings.

Making the Best of the Current System

The old commission structure empowered buyers and supported a vibrant housing market. While legal changes have disrupted this, buyers can adapt by valuing their agents’ expertise and leveraging negotiation strategies like seller credits to manage costs. By working with a top-tier agent, you can secure professional guidance, potentially save on taxes and fees, and still structure deals that fit your financial situation.

Let’s move forward with clarity: the buyer has always driven the transaction. Embrace this reality, invest in a skilled real estate professional, and negotiate smartly to make the dream of homeownership yours—on your terms.

Call Slice of Florida® Realty to speak with a trusted real estate professional today (941) 894-9800

Written by: Steve Martin Smith, Broker/Owner of Slice of Florida Realty