Partnership Potential: The New Home Market

These days, it is difficult to find a residential security system without companion home automation controls. While security may still be the big draw for most homeowners, they have grown to enjoy automation’s convenience and energy savings; in fact, according to a 2017 Park Associates survey, 75 percent of home security installations now include smart control features. The same survey found 90 percent of dealers and integrators offer at least basic interactive services with their security systems.

Smart home technology is big business, with U.S. consumers forecasted to spend $4.5 billion on systems in 2018, according to Statista. Numbers like that grab the attention of traditional security integrators, as well as telecom and cable companies, and manufacturers appealing to the DIY homeowner.

Brian Motheral, general manager of Sacramento, Calif.-based Republic Elite Integration, and Kirk Page, president of Ontario, Calif.-based KPS Alarms, are no strangers to these trends. As integrators in the smart home space, they have unique insight into strategies to acquire new business, deal with competition – especially from the DIY sector – and find recurring revenue in this changing market.

Home Builders: A Solid Partnership

Both integrators get a majority of their business from new home builders, and both say that home security and automation systems are a valuable marketing tool in a crowded – and expensive – California housing market.

Motheral says many builders hesitate when he first approaches them with the idea of including a base security/automation system in each new home. He uses a car analogy to convince them it was in their best interests. “Almost any car above a base model now likely includes a navigation system, back-up cameras and Bluetooth technology included as standard equipment,” Motheral explains. “Technology upgrades have become a given. California homebuyers have those same expectations when looking at new homes starting at a minimum of $400,000. They want the security, convenience and lifestyle features today’s systems offer. And they want them the day they move in.”

Republic Elite recently began a partnership with a Northern California homebuilder that will lead to the installation of security/automation systems in about 500 new homes; in fact, new home installations make up about 80 percent of Republic’s business. Motheral concedes his firm, founded in 2013, doesn’t make as much money per new home as it does installing systems in existing residences, but he sees payback in another way.

“Our goal is to make long-term customers,” he says. “We install systems – programmed by our technicians – in these new homes, so whenever the buyers want anything for the next 10 years they will be calling us.”

Early and frequent contact with homeowners is a big attraction for both Motheral and Page. Typically, Page says, his team meets with homebuyers several times while their home is being built. Each meeting provides a chance to sell more equipment than the builder’s standard package includes.

KPS, which is almost a pure residential integrator, helps its homebuilder partners create the standard. Page says that usually includes a base hub, a few security sensors and maybe a thermostat and front door lock. In a competitive market, builders are careful not to add too much to the price of their homes; however, they are open to integrators selling from an optional equipment list.

“We work with the builders to identify choices that fit with the budgets of likely buyers in each new community,” Page says. “Light switches, indoor and outdoor cameras, video doorbells and garage door openers are the most popular optional choices.”

Voice control, such as with Amazon Alexa, is also popular; but Page and Motheral add that an Echo Dot has become a common move-in gift from many developers. “It is a cool idea because buyers are getting something that’s really useful and they didn’t expect,” Page says.

Page also says he likes using command buttons – small wired or wireless units that can be placed throughout a house to control individual connected devices and/or trigger multi-device automations.

The RMR Hunt

Once homeowners move in, how do these integrators create recurring revenue? Professional system monitoring is an obvious choice; however, most developers do not want to saddle their customers with an additional monthly payment. Also, most security/automation systems include smartphone apps that enable homeowners to self-monitor alarms from cameras, video doorbells and security sensors.

Both integrators use problems such as misplaced phones and dead batteries as sales examples that can leave a home and family at risk. They say it has helped them to sell more than a few monitoring packages. Page adds that he is most successful selling to older, move-up homebuyers who generally have more disposable income.

Motheral has looked into selling maintenance contracts. He says an industry colleague sells agreements that include a home visit every six months to “dust off and realign the cameras and things like that.”

Page thinks the new big source of RMR in the residential market will be network monitoring. KPS uses software to constantly monitor the status of a customer’s network, ensuring security and automation equipment is always working. If there is a network problem, KPS can remotely reboot it. Page sees network monitoring becoming a mainstream offering for most residential integrators within the next few years.

The Competition: MSOs and DIY

Telecoms and cable companies – also known as multiple-system operators (MSOs) – are pushing hard in the residential security/automation market. This is another reason both Republic and KPS enjoy working with new home builders. Motheral called MSOs serious competition for aftermarket business.

“If we can get our system in the house upfront, homeowners are much more likely to go with us for their future needs,” Motheral says. “Plus, since the builder has already paid for a base system, homeowners are more likely to turn down the MSO sales pitch as they set up their cable and/or internet service.”

Page says his first meetings with new homebuyers become “education sessions” during which his team explains why their experience makes them a better choice for security/automation systems, pointing out the builder chose KPS and not an MSO for the job.

DIY products generally appeal to a younger, tech-savvy homeowner confident he or she can pick the best product, then properly install and maintain it. The integrators say it is difficult to keep many from this group as long-term customers; however, both have seen an uptick in requests to install DIY systems.

Although Motheral calls these products “glitchy” and not equal in performance to professional-grade systems, he will let his technicians install DIY products in customers’ homes – if they are willing to pay Republic’s full labor rate.

Page is even more disdainful of DIY systems. “We don’t have a problem with a homeowner installing a lamp or appliance module,” he says. “But we will not install DIY or any equipment not purchased through us. We found that if you get defective equipment or there’s some other issue, we will get the blame. It is not worth getting into an adversarial relationship with our customers.”

Other Issues and Advice

Recent reports of hackers breaking into homeowners’ IP-based equipment also worry both of the integrators. Page says he prefers to hardwire equipment like hubs and cameras into a network switch vs. putting it on Wi-Fi, making it more difficult to hack and reducing the amount of equipment on the customer’s Wi-Fi network. His team also makes sure customers change any manufacturer’s default passwords.

Page and Motheral say it is important to work with UL Listed equipment, generally a sign of a well-made product. “We want to work with manufacturers that don’t rush to market too soon with products that aren’t ready,” Motheral says. “When you work in the new home market, the profit margins are slim. If you have to go back to a house two to three times for service calls, you’ve lost the money you made.”

As far as advice for integrators looking to get into the new home market, Motheral says to take a lifestyle with home builders instead of giving them a hard sell. “Do your homework to understand the marketplace,” Motheral says. “You can be great at knocking on doors and selling aftermarket equipment, but the (new home) production world is different. Remember, builders are under pressure to control budgets. But don’t forget what’s important to the homebuyer.”

Paul Rothman is Editor-in-Chief of Security Dealer & Integrator (SD&I) magazine. Access the current issue, full archives and apply for a free subscription at www.secdealer.com. 

SIDEBAR: Smart Home Tech: Builder Integrates Z-Wave into all New Homes

Home buyers value smart home technology and consider it a major benefit when shopping for real estate; in fact, according to Coldwell Banker’s Real Estate Smart Home Marketplace survey, half of consumers say smart home technology is important for their current home or their next home purchase, with the most desired smart home automation devices being thermostats, sensors, alarms and lighting. 

Diyanni Homes, a developer in Ohio, has recognized this demand for home automation and is incorporating it into their model homes and new builds. The company, which launched in the late 1970s, has built more than 2,000 custom homes throughout Ohio. 

The Ohio residential building market, like most others across the United States, continues to be increasingly competitive, and builders are looking for new ways to differentiate themselves. Diyanni Homes has done so by integrating Z-Wave smart home technology; in fact, all Diyanni Homes now come standard with a Z-Wave IQ Panel, IQ Z-Wave Hub and Honeywell Z-Wave Programmable Thermostat to offer their customers added functionality, comfort and flexibility. 

The added home automation is designed to introduce homeowners to the capabilities of smart home products and give them access to home safety features straight from their tablet or mobile device. With Z-Wave technology, they can remotely access their smart home to unlock doors, turn off the air conditioning, check on cameras and more.

“We chose to incorporate Z-Wave products into our builds because of the technology’s expansive selection of brands and products,” explains Ray Diyanni, owner of Diyanni Homes. “As a custom home builder, it is our mission to present our customers with as many possibilities and opportunities for their future residence as possible. Because there are more than 2,400 interoperable Z-Wave products on the market today, our clients can easily add existing devices or choose from the wide array of devices on the market. 

"We also liked that Z-Wave products are extremely user-friendly, they are easy to pair and add to the network, and they do not rely on the customer’s Wi-Fi network – offering them a lot of flexibility and control,” Diyanni adds.

The devices ensure that homeowners receive notifications and alerts if an alarm goes off or if smart sensors detect any changes to the home environment. This is especially meaningful for Diyanni customers who may live in rural areas. 

Diyanni’s first build equipped with Z-Wave technology was a model home in Sunbury, Ohio, where potential clients can view the technology and see how it works with the home. During the home building customization and design process, Diyanni customers have the option to add other Z-Wave smart home products to their system including smart lighting, plugs and outlets, garage door openers and more. All customers are connected with a Guardian Protection Services representative to help them continue building out a Z-Wave smart home system that makes sense for their family.

It can be daunting for homeowners to build their own smart home systems; however, if builders and construction firms offer it as part of their services and provide the consultation to understand how to use the technology, it will become easier for consumers to understand its value and importance.