Even when using an alarm contractor, builders should understand the basics of security and their potential for revenue sharing.

The first telephone lines in the United States were installed in the late 1880s by Edwin Holmes, not for the purposes of making phone calls but for transmitting alarm signals. Yet more than 100 years later, security system penetration has only reached 28 percent of new homes, while dishwashers and automatic garage door openers are ubiquitous. Why? For one, security is not a desirable purchase for homebuyers. No one tosses and turns at night dreaming about their "really neato" security system like they do about plasma TVs or booming sound systems.

But builders should be tossing and turning at night when they don't sell monitored burglar and fire alarm systems in their new homes because of the missed ongoing revenue opportunity these systems bring. Newer security systems not only protect homebuyers and their families, but they also offer a convenient way to manage the household.

What Is a Security System?

First off, don't even think about installing and monitoring your own alarm systems unless you understand the liability. Being in the alarm business, somewhat like homebuilding, is a 24/7, 365-day-a-year job. Most homebuilders partner with a local or national alarm company for their installation and monitoring, but some, namely Toll Brothers and Centex, have tried to establish ongoing relationships with homeowners to produce recurring monthly revenue (RMR). (See sidebar on page 52.)

The most basic form of security system--either hardwired or wireless--consists of several motion sensors, an alarm panel and at least one keypad. The passive infrareds (PIRS) watch for trouble in and around the house. Common types of security sensors include door and window contacts that detect the opening of doors and windows when a circuit is broken and motions (typically PIRs) that respond to movement within a defined area.

The types of doors and windows you select for the new homes you construct will dictate which kinds of contacts can be used and how they should be applied to the door and window frames. Small holes can be drilled into wooden doors to completely recess the contacts into the woodwork. On vinyl-framed windows, contacts are usually surface mounted.

Motion sensors are typically installed on a wall in the corner of a room. The foyer, back entry, family room and hallways, as well as outdoor areas, are popular spots to place motion sensors. Sensors should be pointed away from heating vents, fireplaces, windows and glass doors to preclude false alarms. For that reason, outdoor PIRs are different than indoor units because they must be able to distinguish a human from blowing leaves, birds and other critters. The same in the case of indoors for pet-immunity sensors, which are designed to ignore Fido or Tabby jumping up on the couch or window sill.

Surveys show that 81 percent of residential intrusions occur through the first floor. Thirty-four percent of burglars enter through the front door and 23 percent through a first-floor window. Given the layout of most new homes, that means the crook enters the house through either the kitchen or the great room/family room.

A range of environmental sensors are available that can monitor a home for water leaks, freezing temperatures, power outages and other conditions that may cause damage if left unattended. For complete protection, builders might want to install water sensors underneath sinks, near washing machines, next to water heaters and toilets, and at every water pan and drain location. Temperature sensors are ideal for wine cellars, greenhouses and other areas where maintaining a consistent temperature is important.

Finally, fire detection and carbon monoxide detection sensors are not only valuable for homeowners, but also a strong selling point for builders. There are basically two types of fire detection devices: heat sensors and smoke detectors. Fixed-temperature sensors can alert you when temperatures exceed a certain point, while rate-of-rise sensors detect more rapid rises in temperature. Another selling point: a hardwired smoke detector will commonly trigger a reduced homeowner's insurance premium.

When any sensor detects a problem, it signals the security panel, which responds by sounding an alarm, dialing a central monitoring station or calling the homeowner.

In all likelihood, the only piece of a security system the homebuyer will interact with is a keypad. Good places to mount one are at the front entry, the garage entry, a main hallway, the master bedroom, the kitchen and any other area from which the homeowner is likely to operate and review the status of the security system. Most systems today are multizone, which allow breaches and fires to be pinpointed quickly. In higher-end systems, homeowners can have a readout of the zones and see the status of each on an LCD screen as part of the keypad. Homeowners can also receive activity reports, which create a log tracing each event that occurs or each time the system is armed or disarmed.

CCTV Is Latest Trend

Surveillance cameras add an extra layer of protection to a home by allowing occupants (and even the central station) to visually monitor the property. When they are connected to a closed-circuit TV (CCTV) system, the cameras can feed images to the screen of any TV in the house. Good places to aim surveillance cameras are at the back yard, the driveway and the front door. These same cameras can double as nanny cams and can be accessed via a password-protected Internet site. In high-security environments, cameras can even be remotely monitored with the homeowners' privacy still intact. Typically, the central station operator only has access to view the video feed after an alarm activation.

Surveillance cameras are microchip based and come in various configurations, ranging from unobtrusive domes to more traditional-looking cameras. When selecting surveillance cameras, it is important to consider where the camera will be used and the conditions in which it will operate. For example, outdoor cameras require weatherproof housings.

Color cameras have dropped in price, and in most instances are preferable, unless the camera is operating in low-light situations. In that case, a black-and-white camera may be best. High-end infrared cameras can show objects in the darkest settings. Dome cameras can pan 360 degrees, and some can also withstand a lot of impact.

In some cases, video from several cameras can be viewed at once on TVs and other video devices. Many higher-end installations today also include a digital video recording device that record events from each camera, which is activated by motion. This allows for the easy retrieval of relevant events, rather than having to view hours of video. Some systems also have video-capture features that can be used to search the video. THB

Should you share the monthly security fee?

At the time of sale, the relationship between the homebuilder and the homeowner is one of the most trusted relationships. That's why some homebuilders are now selling service and maintenance contracts for landscaping, outdoor lighting, snow and waste removal, broadband, phone service or security.

So how much security recurring monthly revenue (RMR) is being left on the table by homebuilders? The average age of a residential contract hovers around 11 years per home, while the average monthly monitoring fee averages $27, according to the National Burglar and Fire Alarm Association. Meanwhile, the National Association of Home Builders (NAHB) reports that only about 28 percent of new homes built in 2004 include monitored alarm services. However, the penetration figure is likely higher in planned communities.

Out of a $27 monthly fee being charged to the homeowner, a security integrator using a third-party contract central station will pay that monitoring facility between $5 to $8 per month. For dealers with their own proprietary central stations, residential monitoring can cost as little as $2 per month per account. Using those figures, an integrator keeps between $25 and $19 in profit per account per month. From that profit is where any shared revenue for the builder will come.

Taking a portion of the RMR helps a builder protect against fluctuating margins of building materials, such as lumber, and the fluctuating economic conditions that affect the sales price of new homes.

Dallas-based Centex Homes is so interested in RMR that it constructed its own central station several years ago. Same with Horsham, Pa.-based Toll Brothers. In particular projects, these builders don't have to share RMR--they keep all of it. Centex's UL-listed central station handles nearly 20,000 subscribers from six states. Centex monitors only single-family homes, having sold its multidwelling business to Protection One in 1998. In combination with its security monitoring, Centex also offers lawn care and pest management services to create RMR.

At national mass marketing alarm companies like Dallas-based Brink's Home Security, the problem with RMR sharing with builders is likely to be the already-low price point. If the alarm company is subsidizing the installation, with a breakeven point not expected for two years, there's not a lot of negotiating room for the builder. In that case, a homebuilder might be better suited asking for a one-time rebate (such as $1 per month per home or 5 percent of the monthly fee for the first three to five years only) vs. trying to establish an ongoing relationship.