Last December (a month before my rent agreement ended), I applied to the following banks for a home loan online. Here were their responses: Kiwibank did not respond. ASB said no due to my low income. TSB said no due to my low income. ANZ said yes, no problem.
With ANZ approval, last month I bought a two-bedroom house for $500,000 in Auckland, and I'm now paying a mortgage of $600 a month.
I hope to share my experience in securing a home loan with your readers.
It's great to hear a good news story about house buying for a change. And it's good to know that our biggest bank seems to be flexible in its lending.
Clearly you're an excellent saver to have got together a large deposit — especially if you've been on a low income for a long time. And with your mortgage payments probably way lower than your rent was, you've got to be a good bet to keep up the payments.
It seems you're hardly a risk to the bank, so it's a pity the other banks were apparently more closed-minded.
Lessons for other readers: save hard. And persevere when seeking a loan — or use a mortgage adviser, who should know which lenders are most likely to accept you.
At the moment good agents can only significantly increase their remuneration by selling more properties. We must question an industry model where agents are not encouraged to maximise the value for their current seller.
We also attempted to use the variable commission approach a few years ago.
We offered to boost the commission each time the sale price surpassed the agreed value by 10 per cent (with a cap of 50 per cent), with commensurate drops if the target price was not reached. If the agent got us in excess of $1.5 million on our property worth $1 million, they fully deserved 50 per cent of anything over and above that!
But all agents baulked when faced with the reality that their expected earnings depended on the accuracy of their price estimate.
Ironically, when we sold our house (quickly after a couple of days), the agent would have been better off by almost $10,000 if she had accepted the alternative structure.
Wow. That's a big bonus the agent missed out on.
But at that time the agents probably had plenty of other listings. As I said last week, a proposal to change the commission structure might get further when the market is stalling, as is the case now.
For those who missed last week's column, under my proposal you and the agent agree on a target price. If you sell for more than that, the agent gets 10 per cent of the extra — up from the usual 2 per cent. But if you sell for less than the target, the agent's commission is reduced by 10 per cent of the shortfall — compared with the usual 2 per cent.
For example: If the house is sold at the target price of $600,000, the agent gets $20,000 under the usual system and my proposal.
If the house goes for $650,000 — yay! — the agent gets $25,000 instead of the usual $21,000. But if it goes for just $550,000, the agent gets $15,000 instead of the usual $19,000.
Currently, with the agent getting only $1000 more if they do really well or $1000 less if they do really badly, there's little incentive to put lots of effort into getting a high price. Better to sell fast and move on to the next property.
You might want to try again — with your model or mine — in a slower market.
Don't begrudge fees
If an agent makes a sale for $50,000 more than expected, he or she gets $1000 more commission. Probably half goes to the agency and the rest is taxed, leaving the agent with $350 in the pocket. As you say, the driver for the agent is hardly there.
I have set up reward and penalty systems with agents on three occasions. They were "off the record", not documented, not involving the agency. But they may throw some light. They were a kind of scaled bet.
The agents loved the idea. Most people like a challenge. It was set up with serious intent but held lightly.
The first time the agent drew a line that I agreed with. Above that he got an extra proportional return. Below that we got a similar return. At one point it changed to $350 on tab at the French Café.
That was what we got at the end. It was a good auction, but the market for the house was below our expectations. So, we were many, many thousands below what I'd dreamed and worked for. But we had an awesome dinner.
The second time worked okay and we ended up paying the agent a modest bonus.
The third time we ended up also paying a bonus, of $5000. In that case, though, it was a mistake to set up the structure. The house was in an area highly desired by Chinese buyers and all the agent had to do was list in the right networks and put his feet up. My naivety.
I think it is best not to begrudge the agent's fees. If you try to sell yourself, buyers will try to discount the agent's fee off their offer, and I think there is some psychological thing that devalues the place a little in their minds.
The agents do have subtle skills for leading buyers in and working up their willingness to pay more. They are pulling at both pieces of string though: yes, trying to work you down (and sometimes you need it) to get the deal happening — and hopefully to make you feel good about it so you will recommend them.
When times are good, lots of agents make plenty of money. When times are bad, lots of agents have to leave the profession because it is starving them. Over it all, do they get too much?
According to the Oxford dictionary, a profession is "a paid occupation, especially one that involves prolonged training and a formal qualification". So I'm not sure that's the right word here. But never mind.
It's hard to know whether it's better to sell your house without an agent. I've done it, and it seemed successful. We ended up with two keen buyers bidding one another up. But I won't ever know if we would have done better with an agent — getting a high enough price to more than cover their commission.
I agree, though, that if you choose to use an agent, it's unwise to begrudge them their fee. You agreed to it. My point is that you're less likely to begrudge the money if the agent has done really well for you. And if they've done poorly, it's some comfort to be paying them less.
In my example above, paying out $19,000 when your house has sold for $50,000 less than you had hoped is hard to take.
You make a really good point about the $1000 difference being, in fact, about one third of that. The current system is ridiculous.
Your variations are interesting. I like the pricey meal idea. It's a celebration for the agent if they do well, and a nice compensation for you if they don't.
Not all agents equal
I have bought and sold several properties, and not all agents are created equal. The agent currently marketing my home is worthy of the commission she will earn, provides free marketing, and knows that if I don't achieve the right price, I won't sell and as a result she will earn nothing.
It always staggers me that people will sit back and be dictated to about their largest asset. Unless vendors absolutely have to sell, if you're not happy with the price, don't sell.
To get around the problem of agents setting a lower target price under my proposal, you could meet several agents first, and discuss the price they would aim at before telling them how you propose to pay them.
In any case, agents tend to quote you a high price to get your business. Even if they did know you were planning to use a different commission structure, they probably wouldn't name a very low price for fear that other agents would "outbid" them.
With one incentive to name a low price and another incentive to name a high price, agents would probably quote more accurate target prices than now.
Anyway, a seller should have a rough idea what their property is worth before talking to agents. There are several websites that give estimates if you Google "how much is my property worth?" When I did it, they all came up with surprisingly similar numbers.
I agree that not all agents are equal. Some sell many more properties than others. But the really good ones should love my proposal. If they do well for a seller, they will be richly rewarded.
When you force the competition for fees as you describe, the cream does not rise to the top — the desperate do. And so you end up with the least capable or successful agents doing your job — those who are actually happy to settle for the lower commission at the lower sale price.
Also you would need to guarantee you will take the lower price if that's what comes — otherwise why bother offering it?
You simply would not get any offers coming as the less capable agent has taken the listing. All they will do is get you a lower price which you won't take — so a waste of time ensues.
The other thing the desperate agents will do is overvalue your property in order to get the listing ahead of others who are more capable. So you really need to choose on track record and experience.
You can't buy a Rolls Royce for the price of a Mini.
Sorry, but I'm having trouble with your logic, too. This is not about desperate agents settling for low commission, but excellent agents shooting for the stars — because they have an incentive to do that.
Nor is there any reason the seller would have to accept a low price, any more than they do now.
On your point about a desperate agent overvaluing your property, see the above Q&A.
- 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 email@example.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.