Some buyers will pay more for a connected home and a connected home may sell faster compared to a home that isn't connected, but the connected home isn't likely to get a higher appraised value than an identical home that is not connected.

Confused?

Raising the same returned value issue raised by energy efficient home improvements, earthquake retrofitting, tornado-safe rooms and other upgrades, connectivity has yet to measure up in terms of value added to the price of a home.

"How does a connected home increase the value of a home? The answer to that is not known yet," said Paul Carter, vice president of Chicago-based Sears, Roebuck and Co.'s contractor services group.

Sears is an active member of the Monterey, CA-based Internet Home Alliance (IHA) -- a nonprofit consortium dedicated to advancing the Internet-enabled home technology market.

For the purposes of a recent alliance study, the alliance defined a connected home as a home with computers, televisions, lighting, heating-ventilation-air conditioning (HVAC), and home security systems, among other elements, linked to a centrally controlled network. That could include Internet appliances -- refrigerators that call the grocery store and washers that dial for repairs.

Working with builders constructing new homes selling for $250,000 to $350,000 in central Florida, Sears has discovered that when homes are constructed with a $1,500 level of connectivity, most of the buyers wanted much more connectivity and paid thousands of dollars to get the upgrades.

"Every house in these communities will have a minimum of established connectivity. So it's a given that the buyer looking at these houses will spend an extra $1,500 to live there. At very high rates, 80 to 85 percent of the buyers are spending up to $3,500. The evidence would suggest at that price point ($250,000 to $350,000), people are willing to spend $2,500 to $3,500 for a fairly robust set of (connectivity) features," said Carter.

The alliance says 17 percent of the population is already sold on connectivity, but pushing that percent up relies, in part, upon the connectivity option adding value to a home, much as do certain home improvements.

Catch-22 In Connectivity's Added Value

Without a sufficient history and sufficient numbers of connected homes appraisers can't determine connectivity's added value. Without the added value, connectivity remains a hard sell to the remaining 83 percent of the population.

The added value of conventional home improvements can be measured because they have universal appeal, a history of comparables and statistical cost-vs.-value analyses based, in part, on added square footage and other physical attributes.

Connectivity's value remains in the eye of the beholder.

"I think you will enjoy a difference in marketing times. If you are building it could equate to an increase in profit, but we don't have enough historical data to do a comparable analysis," said Randy Roberston, an investigator with the Alabama Real Estate Appraisers Board in Montgomery, AL.

Real estate agents agree. They say right now connectivity can add to the desirability of a home in terms of personally perceived value. That can make it a good marketing tool.

"I don't know what value it can add because there are no comparable sales, but it does increase the desirability of the home if it has Internet ready functions, which indirectly can add some sort of value," said real estate and mortgage consultant Robert Aldana of LetsTalkRealEstate.Com in San Jose and Scotts Valley, CA.

Real estate agents caution buyers not to wager too much on perceived value but to consider connectivity's practical value. Any value, perceived or otherwise, could be lost in connectivity purchased, but not used.

"All these items add value. The market value will depend on how much of the buying public want the features. The question is how much value is there that's relative to their costs? Builder upgrades tend to be very expensive compared to their cost or value. People should order these features if they are important to them and they shouldn't order them if they are not going to use them," said Richard Calhoun a real estate investor and broker-owner of Creekside Realty in San Jose, CA.

The alliance is indeed grappling with use issues, especially ease-of-use. Some of the details are out of the alliance's control, as high speed Internet capability remains elusive in many areas. But connected systems with ethernet hookups are useless if the area doesn't provide DSL (Digital Subscriber Line) service. If the local cable service doesn't provide broadband Internet, what's the point of all the extra cable outlets?

"That's why we've been so measured in our approach. Our interest is in what value we bring to market. We need to make it simple. It has to be like the phone. These connected homes have to work like that, otherwise they become somebody's wretched nightmare," said Carter.

Published: October 23, 2002

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.