Building Trade

Builders can be some of the most price-conscious yet at the same time most demanding partners out there, integrators say. They expect their subcontractors to adjust their schedules at the drop of a hat but will take weeks and even months to pay. To be sure, it's a different world from working with owners of existing homes, where integrators typically set the schedule, collect half their money before starting a job and the remainder when they finish.

"The builders think you live for nothing else but to serve them, but it's worth it because you get so much business from them," says Robert Purdy, co-owner and president of Electronic Solutions International, Daytona Beach, Fla.

When ESI was formed a year ago, the plan was to sell and install custom home electronics solutions to existing homeowners and new home buyers. Combining Purdy's 20 years of audio experience with co-owner and Vice President Enrique Nieves' 25 years of IT experience, ESI would spread the message of digital convergence to homeowners. And with Purdy's prior experience working with home builders, taking that message to new home buyers through the builder would be a big part of the strategy. The approach has been successful for ESI, which does more than 40 percent of its business in the new-home market.

"Our builder relationships have helped us a lot because they give us access to customers we would never get to on our own," Purdy says.

Currently, some 34 percent of home builders offer some form of structured wiring package in their new homes, according to the National Association of Home Builders, and the number will only continue to grow as more and more consumers become aware of the technologies available. That translates to a large and growing market for digital integrators, Purdy says, but it isn't right for everyone.

Integrators that work with home builders need a different mind-set, says Jay Bakaler, president of integrator Prime ECS, San Francisco. "Working with home builders, you really have to think of yourself as being in the construction business, not the electronics business," he says. At Prime ECS, Bakaler and his partner, Steve Alexander, work with high-end architects and custom-home builders, so the expectations are high, Bakaler says. "We're construction contractors. We have our own crews," he says. "We're no different from a plumber or an electrician on the job."

Adds Alexander: "What the builder cares about most is that you're not going to go in there and screw up his job. They don't want some flighty guy who doesn't understand the construction process."

That's good advice, says Mike Underwood, president of builder M.L. Underwood Construction, Ormond Beach, Fla. "A lot of builders have been burned by the kid who used to install car stereos at Circuit City and just opened a business," Underwood says.

The key to working with builders is to make things easier for them, Bakaler says. "When things don't work in a new house, the builder usually gets the call," he says. "But we're now seen as a key leveraged partner for the builder. Clients have one phone number to call for anything related to the Internet, home networking, phones, lighting or automation."

Digital integrator iWired does "more than 99 percent" of its business with home builders, says Maggie George, president of the Scottsdale, Ariz., company. "I really love working with builders," she says, "but you do have to know how to work with them."

George says the typical complaints integrators make about working with builders—they set impossible schedules and take too long to pay—aren't a problem if you understand the construction process and work it into your business model. "We spend a lot of time knowing the schedules in place and anticipating how those might change so that we can be ready," she says. "Builders can't afford delays, so they appreciate it when you can adjust your schedule to theirs."

George makes it a point to understand a builder's accounting systems and payment processes before working with them. "Billing a builder isn't the same as billing a homeowner," she says. "They all have their procedures for invoicing that need to be followed. You just need to know those up-front."

Another tip: In the production home business, all jobs have a "rough" phase, when the wiring goes in, and a "trim" phase, after the walls are in, George says. IWired bills for 50 percent of the job when the rough is completed and the remaining 50 percent at the trim, she says. "That makes a big difference because there can be nine months in between those two phases," she says.

Integrators that work with builders divide the new-home market into three categories: custom, luxury speculation or semi-custom, and production.

In the custom market, integrators work with builders and architects, but spend a lot more time with homeowners assessing their needs and wants. "We go in at the design phase and talk about lifestyles with the homeowner," Bakaler says. Custom home installations typically run from $30,000 to $300,000.

The construction process in Prime ECS' high-end market is not as grueling as it is in the production segment, Alexander says, but schedules are demanding. "Most often we'll have a week or less to get all the wiring in there, and these can be very complex jobs."

Still in the custom market but further down the luxury scale, ESI works with a builder that constructs about 150 custom homes per year, says Purdy. ESI has its own suite in the builder's design center, where home buyers come in and work with ESI and other subcontractors to customize their homes. With this builder, homeowners get prewiring and in-wall speakers included in the cost of the home. But they can customize their home electronics with ESI and include the cost of the upgrades in their mortgages, he says. ESI offers three packages to home buyers, a good/better/best in home electronics and automation, Purdy says.

ESI pays no rent for the space in the builder's design center, he says. Instead, the builder takes a cut of whatever the home buyer purchases from ESI.

In the semi-custom, luxury speculation or "spec" market, builders erect "custom" homes before they have buyers, but include a lot more features and upgrades than a typical production house. These days, one of those features is almost always a structured wiring package, says Mark Fielder, president of integrator Domus Technologies, Reno, Nev. "Spec builders are very cost-conscious," he says. "They don't want too much customization because they are afraid they can't get their money back."

The typical luxury spec house in the Reno area will include structured wiring, home networking and wiring for surround sound for an entertainment center and distributed audio, Fielder says. As construction progresses, Fielder and the builder offer the home buyer three packages. "Customers almost always buy the middle package when they buy an $800,000 spec home," Fielder adds. The typical middle package in these spec projects runs about $15,000 and includes a surround sound system and a 50-inch television, distributed audio, and a home networking package, he says.

In production home building, where builders and integrators can turn out 15 houses a week in one location, the process becomes more standardized by necessity, says iWired's George. "We will wire about 4,000 homes this year," George says. "So the process has to be less custom, but we meet with every single home buyer and upsell them on the additional options available to them."

Included in the price of the typical production home from builders iWired works with are CAT5 wiring and a connection center that includes a video module and a telecom module, George says. From there, iWired sells the homeowners on security systems, home theater setups, routers and switches, distributed audio and in-wall speakers, she says. The company also offers a home automation system from Smart Systems that controls temperature, lighting and the security system through touch panels, but customers in the production end of the market tend to opt for the home entertainment setups, she says. Builders typically pay iWired from $600 to $1,100 per home for the structured wiring installations. Most homes generate $4,000 to $5,000 in upgrades, George says.

While builders have high expectations and play hardball on pricing, they are extremely loyal to integrators that meet their expectations, George says. "If you know how to work with builders and deliver on your promises, you can expect to keep their business," she says. "It's not all about the lowest price."