Selling Homes With a PSA

Last month was a good sales month for my building company. I met with four prospects for custom projects and signed a Professional Services Agreement with each one. Judy is the second purchaser of a $2 million home I built three years ago. She wanted to finish her 3,000-sq.-ft. basement with a media room, wine cellar, workout room, bedroom, bathroom and kitchenette.

Steve was negotiating for nine months to buy a $1.5 million lot and needed a builder to tell him whether his remaining budget of $1.2 million was sufficient to complete a 6,000-sq.-ft. home.

Dave completed construction plans that included demolishing his 5,000-sq.-ft. contemporary home and replacing it with a new 7,000-sq.-ft. Colonial.

Henry demolished his 2,500-sq.-ft. ranch and has a building permit for a new 4,000-sq.-ft. traditional home. Henry was awaiting fixed-price bids from four builders and was a referral whose interest was piqued by the construction management open-book methodology I use to build custom projects.

One key factor in converting these four prospects into clients after only one meeting is that during all my initial sales meetings for custom design/build construction, I offer a PSA. The PSA precedes the builder-client contractual relationship. Because the PSA is no more than three pages, is written in layman’s terms and requires relatively minimum funding, prospects don’t feel the need to consult an attorney before signing it. We effectively shorten the time it takes for a prospect to become a client.

I customize each PSA to address the needs of each prospect. I also outline specific steps my company will take to answer the questions raised during our sales meeting. Sometimes they need design work followed by estimating, as was the case for Judy’s basement, and Steve’s project of building a new home for $200 per sq. ft. on the lot he was considering purchasing. They may only need estimating services to quantify the cost of their new custom home, as was the case with Dave’s and Henry’s completed construction drawings.

My company does not estimate or bid any custom projects until we have a signed and funded PSA. In fact, during our initial phone call, I inform all my prospects that we do not bid or estimate any projects until they have funded our PSA. If they do not want to pay for our expertise, I am not willing to invest my company’s time competing with other builders’ bids. The preamble of my PSA is as follows:

"Grant Homes is a full-service builder that specializes in the design and construction of custom homes and additions. Since prospective clients come to us at different points in the design process, and because they have varying requirements for design and budgeting assistance, we offer the following services. We offer these services to you with the express purpose of demonstrating our experience and ability so that you have all the information you require to feel comfortable to execute a Construction Management Agreement to build the project we are estimating on your behalf. We reserve the right to terminate the offer to enter a Construction Management Agreement at any time prior to its execution."

The fee we charge varies based on the services required. When using this approach to sell custom work, it is important to explain to your client that your primary objective for entering the PSA is to give them the information they need to be ready and willing to enter into a contract to build.

Next month’s column will address the next step we use in the custom design/build sales process: open-book construction management.