Now that the U.S. housing market has found a stable equilibrium, bouncing back from the low point of 2009, new home construction is a focal point of revenue for many integrators. But some still struggle with how to formulate a solid working relationship with builders.
According to one luxury homebuilder, a leading CE Pro 100 integrator, and top manufacturer, there is no one-size-fits-all solution. But the working relationship built by Arthur Rutenberg Homes, AAMI and Lutron might be a model for others to follow in the industry. Some advice includes full transparency and a two-stage contract business model.
State of Housing Is Back
The U.S. housing starts have nudged back up over 1 million starts for the year (in 2015). That is double the number from 2009. It certainly is not where it was before the housing collapse, but integrators now know that those high housing start numbers were unsustainable. It was also not healthy for technology because the market was so hot that new homes really did not need the technology in order to sell quickly. The home was going to sell no matter what amenities it had.
With that increase in housing starts, the percentage of builders offering home tech amenities has risen dramatically since 2009. Areas like home automation and energy management systems are now offered by 24 percent more builders than seven years ago. Likewise, lighting control is now offered by 19 percent more builders.
It’s a trend that David Weinstein, vice president of residential sales for Lutron Electronics, has seen on the rise. The company, which is celebrating its 55th year in business as the inventors of the dimming switch, today is a global leader in control of electric light, daylight via motorized shades, temperature and LED fixtures.
Weinstein notes that brand awareness is still the dominant influencer for integrators at the high end of the market because they are “still putting together best-in-class solutions,” he notes. “As we go down into the semi-custom and mid-market production world, I believe the role has changed somewhat. There is a strong need to build consumer awareness and confidence around some of the brands as it relates to products with apps that control the home and the Internet devices throughout it. Builders, always, if they are doing a good job selling quality, are going to try to align themselves with brands that they know have a reputation for quality and reliability.”
John Globetti, president of ARBC, the largest franchiser of Arthur Rutenberg Homes, a luxury homebuilder based in Clearwater, Fla., agrees and says, “We try to be on the cutting edge with whatever we offer. We want to offer the latest and greatest,” says Globetti. “What we have seen is that there have been so many technological advances – from Apple iPhones to other products – it has increased consumers’ exposure to technology and brought so many new players into the market that the costs have come down, and the complexity of installing and operating these systems has been simplified.”
Rutenberg Homes builds in Florida, Georgia, North Carolina, South Carolina, and Alabama. Its average buyer is in their mid-60s. “Their fear used to be that they did not know how to use these devices. But now they are so simple to use, the value of the devices has risen. It has been a win-win for us,” says Globetti.
Incorporating Technology Seamlessly into the Sales Process
ARBC’s integration partner is AAMI, a 23-year-old custom integration and security company based in Naples, Fla. The company covers new and existing homes in the residential space, and focuses on bringing technology that offers a lifestyle benefit to its customers.
John Toscano, COO, says there is still education that needs to be done with entry-level/mid-level builders. “We still have to explain how technology can fit into their blueprint especially as it relates to price. But once you get into semi-custom and pure custom, you don’t have to explain it as much for several reasons: the builder is better educated, the technology is more in the forefront than it has ever been, and the clients are actually asking for it. The builders are trying to stay on top of the technology more than ever because clients are asking questions about it. The builder and the integrator used to have to ask the questions and draw the answers out of the homebuyer. Technology is part of our lives now so it seems to be a natural integration for the home.”
Toscano notes, “I think 50 percent of the time we still have builders who are not being driven to look at technology asking us about it. Many times that is driven initially by a consumer walking into one of their model homes and asking about a particular technology they may have seen in a competitive builder’s home. They ask the builder, ‘Do you offer this?’”
He continues, “If it is a builder who is already using technology, we as integrators are reinforcing how easily technology can be implemented into the building process. That is important to educate builders about. The difficulties of integrating technology into the building process that they might have experienced before do not exist today. The way that technology can be integrated into the new construction and remodeling process has greatly improved.”
Rising Percentages of Equipment Installed
Meanwhile, the percentages of new homes that have installed various home technologies have also risen dramatically since the Recession. Home networks rose 11 percent from 37 percent of homes to 48 percent. That was followed by strong increases in energy management, lighting control and home automation.
“Our buyers typically do a cost-benefit analysis on the amenities, as well as look at how easy and simple to understand the technology is to use,” says Globetti. “We have found that the simple, more value-driven amenities are the ones that people tend to gravitate toward.”
By “simple” Globetti means the day-to-day operation by the client. “If I don’t use something for a couple of months, I forget my password and my steps on how to use it. ARBC buyers are mostly those purchasing second homes, so they don’t want to be gone for four to five months and forget how to operate their lighting control when they get back. So simplicity of use is important.
At ARBC, surveillance systems, lighting control and home automation are the most in-demand offerings right now, according to Globetti.
At Arthur Rutenberg Homes, the builder has a standard package in place that consists of the “groundwork” or infrastructure that allows the homebuyer to add any technology he or she wants.
ARBC works with AAMI and introduces the integration company very early in the process so Toscano can get an idea of how tech savvy the buyer is, what they want, and custom design whatever technology they want integrated into their home.
According to Weinstein, home technologies can really be divided into two larger categories: “legacy” technologies that many have been trendy at one time, like home theater, and network-integrated control-related technologies that are experiencing strong rates of increase today, namely home automation, lighting control, energy management and surveillance.
“Those strong growth categories are being driven by greater simplicity, reliability, and the broader embrace of lifestyle enhancement through technology,” he says. Weinstein adds that the rate at which a builder migrates from simply being interested in offering some sort of home technology to adding it as an option to then making it a standard amenity in their new homes is faster today than it has ever been. He particularly points to the value proposition in that lighting control, energy management and shade control have become such a value that they do not greatly affect that all-important calculation of cost-per-square foot of a home.
“That is why I think you are seeing the penetration numbers go up so fast,” he adds.
Why Builders Install Home Technology?
So why do builders carry certain tech amenities? The top four reasons, according to the NAHB/CTA study, are:
- They need to carry it to compete in the market
- It was spec’ed by an architect or buyer
- It boosts profit
- It sets them apart from their rivals.
When you look at this data, there seems to be an interesting shift in 2015 vs. 2014 among certain categories between profit and competition. A chunk of builders shifted their reasons for carrying security systems, home networks, multiroom audio and home theater from “profit potential to “need to compete.”
Specifically, a builder today is three times more likely to install a home network because of competitive pressures than because he wants to make profit on that network infrastructure. Similarly he is twice as likely to install an electronic security system because he needs to do so to compete against other builders than because he wants to make profit on it.
Meanwhile, a chunk of builders shifted their reasons for carrying lighting control, energy management and home automation from “need to compete” to “profit potential.” In other words, these product categories are being eyed by builders to boost the bottom line, not because other builders are offering them.
Weinstein notes, “There are so many categories of equipment that move from being margin-driven to volume-centric. In terms of Lutron’s categories, lighting and shade control have always been somewhat of a custom solution … there is measurement, selections and setup required. We also know that two-thirds of buyers will choose professional installation. So the lighting and shade control categories, for example, automatically build in a higher level of profitability for the builder than categories of equipment that are becoming more generic or expected by the buyers.”
Beyond that, Weinstein says even for production and semi-production homes, these categories will remain a profit center for integrators who serve builders in those markets.
Why Do Certain Builders Avoid Technology?
So why do some builders still not offer certain technologies? According to data from the NAHB/CTA, among builders who do not offer technology amenities, the primary reason is due to lack of customer demand across the board for all the technologies. In general, three out of every four builders that do not offer technology refuse to do so because demand was weak. That goes for home networks, lighting control, multiroom audio, home automation, home theater, energy management, surveillance cameras, intercoms and monitored security.
Speaking at a forum conducted by the Joint Centers for Learning at Harvard University last year, one large homebuilder cited the fear of service calls from technology as the main reason he does not offer it. He noted that he never gets callbacks within a home warranty time period for drywall, plumbing, tile, carpet, granite, roofing, etc., but he would for technology, and his business is not set up to deal with that. Obviously, that attitude might also reflect the type of relationship he has with his integrator.
“The reason we carry home technology is because we need to do it to be competitive. Also, it is kind of a sign of the times. If you are not doing it, you are going to be left behind,” says Globetti. He notes that callbacks are not a concern for ARBC because they are working with a reputable integrator in AAMI who can handle those service calls should they occur. Globetti adds that the key to a successful long-term relationship with the client is to bring the integrator into the process early so he is able to establish rapport with the homebuyer. That makes the entire planning and implementation process go much smoother, as well as sets the stage for potential upgrades or service after the project is completed.
Marketing Home Technology
Promoting home technology to prospective homebuyers has become imperative. In fact, 84 percent of builders say it is “very important” or “somewhat important” to market a smart home to potential buyers.
Why? Because 91 percent of new homes have high-speed broadband connections set up by the builder compared to 59 percent in 2009 … thus paving the way for smart homes. Further evidence that drives the need is that 53 percent of new homes now have home offices compared to just 34 percent in 2009. And the bottom line is that home technology seems to be working for many builders. Fully, 36 percent of builders report home technologies increased their revenues in 2016 (up from 25 percent in 2009).
Using Design Centers & Two-Stage Contracts
ARBC has multiple design centers. Interior and exterior selections are all made there for flooring, colors, etc.
“To be honest with you, we don’t have our designers do a lot of the discussion on the technology because they are not as educated as our integrator AAMI,” says Globetti. However, Toscano may meet clients and have technology discussion with them at the Arthur Rutenberg Homes’ design center.
“We will meet with the clients in the design center early on in the process, before there is even a foundation or walls for the home,” says Toscano. We will do a conceptual meeting to get an understanding of what their wishes are and where they would like to see the house go in terms of technology. We also find out what technology they are familiar with… what they have used in the past and liked and what they didn’t like. We then will formulate an initial design plan.”
From there, AAMI will typically meet with the client in a model home and do a walkthrough. Later, AAMI will meet with the customer on the jobsite itself and do a full high-voltage and low-voltage walkthrough, since AAMI is also an electrical contractor.
“Every piece of information we gather is reported back to the builder so we can be seamless in the building process,” notes Toscano.
After that consultation, the rough-in installation occurs, then another walkthrough meeting takes place, typically 30 days prior to the final closing date on the home. In that walkthrough, specific technology needs such as television locations and where the furniture will be placed.
“We want to make sure that we are not making changes that will cause an increase in the punch list for the builder or slow down the construction process. All of that will ultimately affect the closing date for the home. It is a constant partnership. Integrators who create partnerships with builders have a more seamless path to sell technology that works for the builder and for the consumer,” adds Toscano.
Contractually, AAMI has a two-part contract. Anything that is “fixed” in the home, such as infrastructure wiring, in-wall/in-ceiling speakers, keypads, etc., is presented in a contract that the builder gives to the customer. But other ‘non-fixed” equipment, such as receivers, televisions, amplifiers, is presented directly in a contractor by AAMI to the customer.
There is full transparency with the builder on both contracts. That is important, according to Toscano, because invariably the homeowner is going to call either the builder or the integrator to ask about equipment in the contracts, and it is important for both the builder and integrator to know.
On the “fixed” equipment contract, ARBC is able to mark up certain categories equipment but not others. “In this day of ease of information, consumers have access to pricing right on their iPads. There are some items we can mark up and others that just have to be passthroughs,” says Globetti.
Weinstein of Lutron notes, “Every builder is a little bit different. There is no one-size fits all. But there is an increasing trend among builders to move beyond upgrades to develop starter packages of technology. There is also a growing trend to have a base standard of technology in the home and then use the design center to add on equipment or extend the technology to additional rooms in the home. Many builders have products like ours in their design centers. We work with them to align the entire training and logistics model.”
He says the key for both manufacturers and integrators is to learn how individual builders work and create systems that deliver value add and profit for that builder.
Toscano believes an entry-level standard technology package is critical for builders to offer today. That introductory package helps introduce the homebuyer to technology. A face-to-face meeting by the integrator with the homebuyer is also imperative. The integrator’s message cannot be filtered.
Builders’ Top Criteria for Selecting Integrators
When it comes to choosing an integrator, price is important, but it is not the only thing. According to the NAHB/CTA, the top 10 criteria that builders use to choose a technologist are:
- Completeness of offerings
- Experience working with other builders
- Recommendations from other professionals
- Simplicity of offering
- Availability of brand names
- Opportunity for recurring revenue
- Years in business
- Size of company
“To be able to do more than just one discipline is critical to our success,” says Toscano. “To be able to walk into a builder and offer low-voltage, line voltage and alarm monitoring is generally unprecedented for a builder who usually has to go to multiple subcontractors for each discipline. For the builder, that means he only has to make one phone call to get something resolved.”
Weinstein points out that working with MDU developers is bit different. “It is a mix between commercial-style spec-bid-buy work and relationships. MDU developers have the same goals as a single-family builder … they want to differentiate their value. So whatever the cost per square foot is to build the condo or apartment, the developer needs to build in an appropriate level of technology for their buyers – old or young,” he says.
Tell us about your project…if you are a builder or are working with a builder and need help with smart home technology, contact Lutron.