Mary Holm: Make agent work for your listing

I am looking to sell my house and I remembered that you published an article a long time ago about the commission structure you reckoned would be a lot fairer for the seller — in terms of making the real estate agent take a bigger hit when they reduced the price of the house they were selling.

It was a sliding scale, if I remember. Can you send me the info please? I want to keep my agent on their toes.

Better yet, I'll tell everyone about it.

I've used this tactic successfully a couple of times in my life. But once I was stonewalled when all the real estate agents in the suburb refused to structure their commission differently. At that time they were getting plenty of listings, and didn't seem to mind much if they missed out on mine. So I had to settle for paying the usual commission.

These days, though, with real-estate sales decreasing around most of New Zealand, agents may be keener to get your listing than a year or two ago. So how does my idea work?

Most agents charge a two-tiered commission of, say, 4 per cent for the first $400,000 they get for your house, and then 2 per cent of the rest.

Let's say they tell you they expect to sell your place for $600,000. If they succeed at that price, their commission will be $16,000 plus $4000, which comes to $20,000.

If they do really well, and it goes for $650,000, they get $1000 more. If they do abysmally, and it goes for $550,000, they get $1000 less.

So it doesn't make much difference to them how well they do. They probably think it's better to sell the property quickly and cheaply, get $19,000 commission, move on to the next property and make another $19,000, than to put more time and effort into it and get $21,000.

Under my proposed different commission structure, you start by saying, "Okay, if you sell at your expected $600,000, you get the same $20,000 as under your structure."

Then you say, "But for every dollar over $600,000 you sell it for, you get not 2 per cent but 10 per cent. And for every dollar under $600,000, you lose 10 per cent."

That means that if the house goes for $650,000, they get $20,000 plus $5000, totalling $25,000. That's way better than $21,000 under the usual structure.

But if the house sells for just $550,000, they get $15,000 — well down from the usual $19,000.

To encourage the agent's acceptance, you might sweeten the deal by adding a $1000 bonus to their commission whatever happens.

The point is that the agent has a bigger incentive to get you as high a price as possible.

From your perspective, if your house sells for well above expectations, you won't mind paying more for that service. And if you sell for a disappointingly low price, at least you're not forking out so much commission.

This should not be unfair to agents. If they stand behind their price estimate to you, they should do just as well — or better when you give them the $1000 bonus.

But let's look into that "if". Former real estate agents have reported that many of their colleagues will give you an initial price estimate that's higher than realistic. After all, if you're talking to several agents — and you should be — you're more likely to go with the one who says $600,000 than the one who says $570,000.

Then, once you've listed with them, they start pushing down your expectations. "The market seems to be turning," they say, or, "At the open home, lots of people were criticising the lack of sun."

All this prepares you for accepting an early low offer rather than holding out for something better. The agent takes their money and runs.

However, with my proposed structure:

• Agents will be more likely to give a realistic price estimate to start with. They don't want to end up selling much below it, because their commission will be low.
• They will have a strong incentive to work for a higher price for you.

It's a good way to find out which agent is likely to deliver. A really good one should love it.

In fact, agents, how about taking the initiative and setting up your commission this way? Tell your clients, "If I win, you win!"

Fun is possible

Your last column startled me with your answer to a question "Saving too much?" posed by a single 40-year-old, with $100,000-plus income, a mortgage planned to be paid off in the writer's mid-50s, and no other savings other than $50,000 in KiwiSaver. Your advice was: lower your savings rate and blow the rest on fun stuff!

Are you serious, or was this a calendar-date mistake, meant for April 1?

This individual would end up in his older age with minimal savings and saddled with ever-increasing bills for rates and health insurance or care, becoming yet another (maybe) asset-rich but cash-poor pensioner.

What is wrong with paying off the mortgage much quicker and salting away say 20 or 30 per cent of the income? On a six-figure income, even after taxes, there should be still money left for "fun" stuff. There are many working poor elderly people who probably would love to have had the chance to build a meaningful nest egg like this person has, far beyond KiwiSaver, which was only ever meant to be a modest top-up.

I certainly was serious. Given the correspondent's situation, I reckon it's practically impossible that she will struggle financially in retirement. (Yes, she's a woman. It's funny how people often assume correspondents are male.)

The reader earns in the low six figures, so let's say $110,000. If she reduces her KiwiSaver contributions from 8 to 3 per cent of her pay — as I suggested — she will have about $500,000 in KiwiSaver at 65, according to Sorted's KiwiSaver Savings Calculator that I wrote about last week. Adjusted for inflation, it's still more than $300,000.

If she works until 70, which is what she expects, she will have more than $700,000, or nearly $400,000 adjusted for inflation. Not such a modest top-up.

What's more, she's paying extra off her mortgage, so those payments will be large. When she's mortgage-free at 54, she will be able to switch all that money towards her savings.

With compounding returns over 10 to 15 years, that might add a couple of hundred thousand dollars to her next egg. And she has no other debt.

So what's wrong with repaying her mortgage extra fast and saving heaps — which you recommend? The reader is sacrificing too much for the future and depriving herself of some good times now. She says, "I would love to travel and do some cosmetic upgrades to the house." And she should.

If NZ Super wasn't going to be there for her, as she fears, it would be a different story. But I hope I reassured her that it will be there — even if it doesn't grow quite as fast as now, and starts at an older age.

While many people don't save enough to have a comfortable retirement, I suspect there's a considerable number who save too much. Often they seem to be single women, who perhaps tend to be more cautious than others.

Life is not all about being careful. I'll keep urging people in that situation to get out and spend more.

Tips for great-granddad

I am an elderly great-grandfather with several great-grandchildren growing up very rapidly. I am considering gifting $30,000 to each child's KiwiSaver account.
Should I do so, will they be able to withdraw the full $30,000 as additional cash equity when applying for a first-home HomeStart grant? Have you any alternative recommendations?

Lucky kids! Yes, they would be able to take all the money out of KiwiSaver to buy a first home — even if they can't get a HomeStart grant.

There are two aspects to KiwiSaver first home help. For the grant, there are income, house price and other rules — so your young ones might not qualify. But everyone who has been in the scheme at least three years can withdraw all their money except $1000 to put towards a first home.

Depositing the money into KiwiSaver is a good way to ensure it goes into a property, as opposed to being squandered on cars, entertainment or other stuff. It's hard to predict what the young might get up to. However, I have two slight reservations:

• Some of the young ones may not want to ever buy a home. These days, some people prefer to rent all their lives. But that's no big deal, as they would then need to retire with more money, and the $30,000 compounding over the years would be a big boost to their KiwiSaver retirement sum.
• Don't forget to provide for any further great-grandkids. You might even set something up to cover children born after you die. A $30,000 gift is sizeable, and grandchildren whose offspring miss out might feel hard done by.

Sort teen's finance

My 16-year-old daughter has been left $23,000 and we would appreciate your views on the best place to park it.

I have already given her shares to the value of $18,000, mainly to acquaint her with the sharemarket. KiwiSaver is one option, but tying up her bequest detracts from this. I anticipate funding her uni study and a first car.

I favour shares such as Infratil to give growth with access to funds if she needs to. What do you think? She is responsible and rational with money, buying clothes, etc, from op shops.

Another lucky one! And a slightly different situation from above, as you seem confident your daughter won't squander the money. So in her case keeping it out of KiwiSaver makes sense. She might want it, for instance, to start a business.

But I've got a couple of concerns. One is the idea of putting the money into any single share. Even so-called blue chip shares have gone wobbly in the past. The other concern is your use of the word "park". Does that mean you expect your daughter will spend the money within the next 10 years?

If so, shares are rather risky. I would recommend a balanced non-KiwiSaver fund. This would give her a mix of shares, bonds and perhaps other assets — which would water down sharemarket swings.

And once she gets within about three years of spending the money, bank term deposits are a good idea, as they won't lose value right when she takes the money out.

However, if the money is likely to stay put for a decade or more, a non-KiwiSaver share fund would work well.

To choose funds, you could use Sorted's KiwiSaver Fund Finder. When you've chosen a fund, ask the provider if they have a similar non-KiwiSaver fund. Most do.

Tiny houses and land

This is probably a little off-topic, but I wanted to reply to the person with the tiny house a few weeks ago.

There is a great website called "landshare.nz" where people can advertise land they have to share and others can advertise their tiny house and the land they are looking for. I think it would be fantastic if more people knew about it. It is a great example of community-mindedness.

Thanks. I don't know much about this website, but it does look helpful.

- Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.