We've observed something that seems increasingly common in Manhattan Beach home sales: Cash buyers opting to pay their agents' commissions themselves, rather than folding in those fees with the purchase price.
There's one obvious reason why it might seem more common in the past couple years: We've seen changes in real estate business practices, whereby sellers do not make any upfront commitment to pay any buyer-agent compensation, such as through the MLS.
Instead, the buyer's agent's fee is more visibly a part of the offer and negotiation. Considering this part of the process – how to pay their own agent – cash buyers conclude something like, "Why should I pay tax on my agent's commission?"
(The benefits we will discuss below really do not apply as well to financed buyers. When there's a loan, the tradeoffs involving hoarding cash versus using leverage would typically favor asking the seller to pay out of their proceeds.)
We recently interacted with a cash buyer who was very confident that he'd discovered a "hack" to the system. (His word.) Not only would he pay his buyer agent fees directly, but he'd also find out what the listing agent's fees were going to be, and pay those directly as well.
This would bring his purchase price – in this hypothetical transaction he was discussing – down by 5%. Think of the money he'd save on taxes!
"It only grows and grows," he said.
So, we thought: How much money would he be saving on taxes? Does it "grow and grow?" And how much are other buyers saving when they try some variation of this tactic?
And around here at MBC, you know what's next: Data, graphs, charts. Here we go!
In California, your property tax bill is tied directly to your recorded purchase price. Under Proposition 13 (1978), the assessed value can be increased by up to 2.0% annually, but no more.
Because your assessed value increases, payments increase over time. But so do savings, if you have lowered the purchase price by using this tactic.
Our first chart here simply gives the annual property tax savings a buyer achieves by paying some commissions directly, instead of as part of the purchase price.
(As placeholders, we've used 2.5% fees for both the buyer agent and listing agent. In any transaction, fees are fully negotiable, and there are no "standard" fees.)
Did you think it would be a lot of money? The $2M buyer pays $554 less in Year 1 than they might have otherwise. Meantime, they pay over $21,600 in property tax that year.
The benefits are somewhat larger at higher price points, and a bit later into ownership.
For instance, the $4M buyer who pays 5% directly – getting a lower purchase price in exchange, of course – is banking annual savings of $2,649 by Year 10. They pay a bit over $50,000 in property tax in that same year.
The $6M buyer saves almost $1,700 per year at first if they paid 2.5% directly, and more than $3,300 per year if they paid 5% directly.
Some quick reactions:
- Some savings do exist.
- The savings are modest.
- Savings grow with the size of tax bills, but there is no "compounding effect" by which tax savings grow exponentially over time.
That last bullet may or may not be a surprise to you, but it's true. We'll come back to it toward the end.
Let's go BIG in the next chart.
Now we're looking at the absolute Big Picture. How much do you save over time by employing this particular gambit?
The $2M buyer has saved $22,482 total after 30 years, if they paid 2.5% directly.
The $6M buyer who paid a full 5% directly has over $36,000 in savings after just 10 years, and hits nearly $135K in savings after 30. Results for the $4M buyer fall right between these figures, depending on how much they chose to pay directly.
All of that is real money, no disputing it. It's just that, in context, it's not much.
That $6M buyer who saved $135K has also paid almost $2.6M in property tax over the same 30-year period. They just didn't pay $2.7M.
The $4M buyer who paid 2.5% directly to save on property taxes does save $26,930 by Year 20, while having paid $1,050,278 in property taxes during that period. Better than $1,077,208!
It is all so very relative.
At risk of spooking you off any property purchase anywhere at any time, here's the total property tax due over 10, 20 and 30 years on properties of $2M, $4M and $6M with these purchase-price discounts built in:
Sure, that seems like a lot of tax paid. But at least you're in a city and state where property tax rates are stiffly controlled. Homeowners in many states have regular market-value reassessments.
It's worth noting that assessed property values at the end of 30 years end up thusly:
$2.000M = $3.551M
$4.000M = $7.103M
$6.000M = $10.655M
And we know that actual values tend to far surpass this formulaic, 2%-per-year value increase, especially in Manhattan Beach. So the tax paid literally vanishes in the appreciation.
Impact on Monthly Bills
Will you notice the savings while they're happening?
Time for another chart.
Now we're looking at the change in a buyer's monthly payment as a benefit of having paid some commissions directly.
The $2M buyer stashes away $46 per month right away after a 2.5% direct payment.
The savings can reach $100-$300 per month at higher price points, and with higher amounts paid directly, even approaching $500/mo. for the $6M cash buyer who paid the most directly. (Although this is after 30 years of ownership.)
Do people notice those kinds of savings?
True story: In a prior career, we once had some projects involving a billionaire client. (The old-fashioned kind who built a business, not a tech god.) He wanted detailed financial reports, which we prepared and sent. After a few months, we got some feedback: Stop rounding the numbers.
Yes, we had been using accurate, whole-dollar figures for line items, knocking off the cents to make the reports more readable. Evidently, he did not become a billionaire by having pennies rounded for him. Point taken. We never did that again.
Now, if you're more the type who gets your burritos delivered by taxi, or lets someone else book your travel, "devil may care" about the costs, well, maybe you won't notice the $50-$200 range of property tax savings each month.
But it's something, right?
Benefit Stays Flat Over Time
Remember that one line from the cash buyer who was talking to us?
"It only grows and grows," he said of the tax savings he'd enjoy by paying 5% commissions directly, with a lower purchase price.
Maybe he'd be surprised if he saw the numbers.
The reality is that the savings grow as the tax bill grows, but the savings never compound. (We're pretty sure he was assuming a compounding effect.)
A lower starting value buys you a permanent, modest tax discount, but it doesn’t build on itself. Some readers are saying "duh," and some are saying, "show me." So here you go, our last chart.
Every scenario here shows the same thing: You get 2.5% or 5.0% off the property tax bill in perpetuity, based on the amount you originally took off the purchase price, and that’s the whole story.
For something billed as a clever workaround, it’s remarkably flat. That's why we'd say paying commissions directly is a modest benefit, but not a "hack."
This is all separate from the question of, "Should you endeavor to pay less in property tax?"
Your property tax payments go to Los Angeles County for distribution to local governments, schools and public safety. Most people have an aversion to paying any more than they have to, but this is the consequence – less local money for those purposes. Something to consider before "hacking" the system.
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Nerdy Notes
Property Tax 101
As noted, in California, your property tax bill is tied directly to your recorded purchase price. Under Proposition 13 (1978), the assessed value can be increased by a maximum of 2.0% annually. Only new construction or major remodeling/additions can trigger an upward value adjustment while ownership remains the same.
Assessments are the responsibility of county governments, which also collect and distribute property tax revenue. Although local property tax revenue can affect how some state funds are distributed, the money never goes to the state.
Assumptions
There are two vital numbers assumed to be steady throughout these calculations, which could or would vary in reality :
1) Property tax rate. We used the Manhattan Beach property tax rate for fiscal year 2025-26, which is 1.108359%, throughout this analysis. (This page on MBC is kept as current as we can with the local tax rate, including line items.) In reality, this number varies ever-so-slightly from year to year. And our property tax calculations here do not factor in additional local charges, such as for bonds.
2) Appreciation rate (2.0%). This is the maximum annual upward adjustment in assessed home value, per Proposition 13. We assume this maximum increase is made every single year. In reality, LA County might not always assess the full 2.0%, and in down markets, the county has been known to downwardly adjust property values. (They can step back up later.)
We also assume that a home remains more or less as it was at the time of purchase, with no major remodeling/additions or new construction that might trigger an adjustment in value at a later date.
