Prevent problems with clients by helping them set their expectations right from the beginning.
All custom builders encounter difficulties with clients at one time or another. Unfortunately, since the housing crash, clients are getting aggravated about more than a day of inactivity on the job site or a window detail that doesn’t look the way they pictured it. Some smell blood in the water and focus only on securing the lowest bid. Others want an unreasonable amount of control over the process.
The best strategy is to try to prevent problems from occurring right from the start. Here’s how the pros do it.
At the end of 2007, everything changed for Ralph Cataldo. “We were pretty much order takers from 2002 to 2007,” says the president of Cataldo Custom Builders, East Falmouth, Mass. “The biggest thing [with clients] during that era was, ‘How fast can you get it done?’”
Now, price is everything, Cataldo says. “With our existing clients, there’s never an issue with price, because we’ve earned their respect, trust, and loyalty. But to new clients, we’re often just a number on the interview list. Some clients simply want to take advantage of the economy and go bottom fishing.”
Tom Stephani, a custom builder, trainer, and consultant based in Crystal Lake, Ill., agrees. “There’s very little room to move with price,” says Stephani. “That makes it very contentious. The lower your margins, the more you have to stand your ground.”
5 tips for dealing with difficult clients
1. Explain to potential clients why it’s in their best interests to hire an experienced, reputable builder who can give them personal attention, rather than accepting the lowest bid.
2. Make sure clients understand how their home is going to look. Walk them through the blueprints before construction starts and give them access to weekly updates, such as in-progress photos, on your website once the home is under way.
3. Allow clients with cost-plus contracts to review your books on a regular basis while the home is being built.
4. To minimize surprises and eliminate most potential problems, communicate, communicate, communicate. If clients get angry, let them vent. Once they’ve calmed down, tell them you’ll address their concerns in writing.
5. Include a clause in the contract that stipulates what will happen with the project in the event of an unforeseen development with you or the client, such as death, divorce, or job loss.
Cataldo was losing so many jobs to lowball bids that he created a pyramid to boost staff morale and show architects and potential clients why going with a low-end builder is a mistake (see illustration below). “I had to illustrate that the guys at the bottom of the pyramid were being allowed to creep up and bid on jobs they shouldn’t be doing,” he says.
John Barrows, a custom builder and green-building consultant based in Wainscott, N.Y., believes you can never manage somebody’s expectations if you haven’t done a good job of setting them. “You have to do due diligence with pricing, scheduling, trade-contractor interaction — everything. All the upfront work you do is only going to help you in the long run,” Barrows says.
Thorough documentation helped Barrows maintain civility with a client who disputed the incentive/penalty clause in his contract. The client insisted the home was finished three weeks late. Barrows pointed out that it was actually completed two weeks early because of some changes the client had made, and suggested he take a second look at the schedule. The client conceded Barrows’ point but still wouldn’t pay the builder an incentive for early completion.
“I wasn’t going to quibble over two weeks,” says Barrows. “The point is that it ended what could have been a protracted argument.”
When clients become difficult, there’s usually a single issue at the heart of it, says Michael Lenahen, president of Aurora Custom Homes in Jacksonville Beach, Fla. “Let’s say the draw schedule is based on milestones until completion. As part of the contract document, we’ve got a percentage next to every line item of construction, such as roofing, windows, and drywall.” Nevertheless, sometimes a client will say, “Hold it! You’re asking for a draw on the roof, but near the second story the roof isn’t done.”
In this case, Lenahen’s response might be, “We can’t put down the concrete tiles for that roof section until the stucco is applied to the adjacent wall. We’re leaving room for the guys with the walk boards and scaffolding.” If the client still balks at giving up the entire roof draw, he could say, “Okay, but I’ve already installed the windows and I didn’t ask for that draw.” It’s a matter of give and take.
Inactivity on the job site can also get under a client’s skin. Early on, explain to your clients why there may be days when nothing happens with their project. For example, when an inspection is scheduled or the crew is waiting for materials to be delivered.
Clients who are always traveling can be a nightmare for the builder when it comes to making decisions. Lenahen recalls a situation where there was a four- to six-week gap between plan revisions because the couple was often out of town. During construction, they kept changing their minds about selections, but weeks would pass before they told the builder about them.
In retrospect, Lenahen would have suggested that the clients utilize an interior designer to begin accumulating different sample boards so that when they were in town, they could have a productive meeting with their builder.
“In situations where clients can’t make up their minds, spouses don’t agree, or people are just too busy, the interior designer is an advocate who can help bridge either the time gap or the communication gap,” he says.
Design professionals and builders shouldn’t assume that their clients know how to read blueprints. This is especially important if the home is designed by a residential designer rather than an architect, says Lenahen. “An architect’s plans are going to be 50 to 70 pages long with details upon details,” he says. “A residential designer’s are 10 to 12 pages. That leaves a lot of room for interpretation.”
Aurora holds a pre-construction plan review with clients. “We walk them through the home on paper, room by room,” he says. “The process reveals many things they did not know were on the plans and gives them a chance to say yes or no, before we build.”
Some of Cataldo’s clients simply want more control. “Even in a fixed-contract situation, they may ask to see our books when a multimillion-dollar project is complete,” he says. “This usually happens when they’re busy and either the wife or the husband makes significant changes along the way, so the final price ends up being much higher than the contract price. We’ve seen our contracts increase anywhere from 5 to 40 percent. On average, it’s about 15 percent.”
Fortunately, Cataldo has a detailed cost-tracking system that quickly shows the client how those changes affected the final price. “The transparency we have in accounting and estimating allows us to gain even more trust with our clients,” he says. “I believe this goes a long way with clients that have the money but just want to feel they were treated fairly.”
Lenahen believes clients should only be allowed to see a builder’s books if they have a cost-plus contract. “They’re not privy to that information if it’s a fixed-price contract,” he says. “With a cost-plus contract, you give them the budget upfront and schedule periodic reviews. Invite them to look at the books often during construction, so you don’t have the mother of all closings where the client is scrutinizing every single invoice.”
Aurora invites clients to use its conference room for such reviews. “We lay out our books and tell the clients we’ll be in the next room if they have any questions. They can page through the paid invoices, lien waivers, and certificates of insurance.” After the second or third review, he says, clients don’t come in anymore: “We’ve built credibility by showing complete transparency.”
Accidents, death, divorce, and job loss are some of the unforeseen events that can happen during the course of a building project. But there are steps builders can take to achieve as positive an outcome as possible under the circumstances.
Barrows says there should be a termination clause in the contract for such catastrophic events (this can apply even if the project doesn’t work out due to personality conflicts). The clause should define any change in the scope of the project and the distribution of monies accrued should the builder-client relationship be dissolved.
A client once asked what would happen to his new home if Lenahen died. The builder explained that his partner would honor the contract and oversee his superintendent in the field. “I also purchased key man insurance, so if something happens to me they’d be able to bring in a construction manager to finish the home.”
Lenahen advises couples not to abandon a project in the middle of construction if a spouse dies. “I would urge them to let us finish it. We can change the specs on the fly and leave out the more extravagant items they wanted originally,” he says. “We’ll do everything we can to finish it in a timely manner, keep it clean, and help them sell it.”