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What Is a Smart Home?

How They Work

Smart Home Systems

Advantages and Disadvantages

The Bottom Line

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Smart Home: Definition, How They Work, Pros and Cons

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Investopedia / Mira Norian

A smart home refers to a convenient home setup where appliances and devices can be automatically controlled remotely from anywhere with an internet connection using a mobile or other networked device.

A smart home refers to a convenient home setup where appliances and devices can be controlled automatically or remotely with an internet connection and using a mobile or other networked device.

Devices in a smart home are interconnected through the internet, allowing the user to control functions such as security, access to the home, temperature, lighting, and a home theater.

Key Takeaways

A smart home allows homeowners to control appliances, thermostats, lights, and other devices remotely through an internet connection using a smartphone or tablet.
Smart homes can be set up with wireless or hardwired systems.
Smart home technology provides homeowners with convenience and cost savings.
Security risks and bugs continue to plague makers and users of smart home technology.
Though full-scale home automation may cost thousands of dollars, smaller individual products can cost less than $100.

How Smart Homes Work

A smart home’s devices are connected with each other and can be accessed through one central point—a smartphone , tablet, laptop, or game console. Door locks, televisions, thermostats, home monitors, cameras, lights, and appliances such as the refrigerator can be controlled through one home automation system.

The system is installed on a mobile or other networked device, and the user can schedule the performance of tasks and devices.

Smart home appliances come with self-learning skills. They can learn the homeowner’s schedules and make adjustments as needed. Smart homes enabled with lighting control allow homeowners to reduce electricity use and benefit from energy-related cost savings.

Some home automation systems alert the homeowner if any motion is detected in the home when they're away. Others can call the authorities—the police or the fire department—if dangerous situations arise.

Once connected, services such as a smart doorbell, smart security system, and smart appliances become part of the internet of things (IoT) technology, a network of physical objects that can gather and share electronic information.

Security and efficiency are the main reasons for the increase in smart home technology use.

Smart homes can feature either wireless or hardwired systems—or both. Wireless systems are easier to install. Putting in a wireless home automation system with features such as smart lighting, climate control, and security can be limited in cost to several thousand dollars, making it relatively cost-friendly.

The downside to wireless systems is you likely need strong Wi-Fi coverage and broadband service throughout your entire house. This may require you to invest in range extenders or hardwired wireless access points. Wireless smart home systems are generally more appropriate for smaller existing homes or rental properties.

Hardwired systems, on the other hand, are considered more reliable. They are typically more difficult to hack. A hardwired system can increase the resale value of a home. In addition, hardwired smart home systems can be scaled easily. Therefore, it is often the default method when designing a new build or performing a major renovation.

There is a drawback—it's fairly expensive. Installing a luxury and hardwired smart system can cost homeowners tens of thousands of dollars. In addition, you must have space for network hardware equipment including Ethernet cables.

Components of a Smart Home

Smart home products now allow for greater control over heating devices, including turning products on and off, and controlling settings. Smart products may be armed with temperature or humidity sensors to automatically turn on or off if certain criteria are met. This line of smart home innovations also extends to air conditioners.

Often with the use of a mobile phone, tablet, or custom remote specific to a product, lighting products now offer homeowners enhanced capabilities and convenience. Lights can be switched on and off, placed on a schedule, or set to change based on sunrise or sunset times. Like some more traditional products, lights can often be set to change based on motion. Smart bulbs can communicate over Wi-Fi and display statistics or metrics on your phone.

This lighting category may also contain smart home products that control the degree of light. Automatic blinds may be installed and set to close based on sunrise schedules. Alternatively, electronic curtains allow users to manage their blinds using a handheld device.

Audio/Visual

One of the more appealing aspects of smart homes is the many entertainment products that can be connected to each other and controlled with a single remote. Television and speakers can be played on command using applications. They can be operated according to a schedule or by voice-control.

One of the most important aspects of a smart home is the enhanced security capabilities it offers. Products with cameras track motion, capture video, or allow for live video feeds. These may be installed to sync with a ringing doorbell or set to capture certain areas of your property. Products can facilitate audio as well as video calls with individuals at your door.

Many smart homes are also refit with advanced security kits. These kits includes motion sensor detectors, home monitoring, notifications and alerts concerning suspicious behavior, and the ability to lock doors or windows remotely using a phone.

Smart homes can also include digital assistants or home hubs. People interact with these products using their voice and by issuing commands. They can field questions, organize your calendar, schedule conference calls , or provide alerts.

Smart smoke and carbon monoxide detectors not only sound an alarm but can be synced to your phone to alert you should you be away from your property. These devices can often be set up to send emergency notifications to other, specified contacts.

People have been able to program automated irrigation systems for a while. Now, smart irrigation systems can detect climate and environmental conditions and factor them into watering schedules. Smart irrigation systems can also monitor moisture-related conditions and control irrigation to conserve water.

When budgeting for smart home products, remember to consider the costs related to necessary labor/installation work.

Advantages and Disadvantages of Smart Homes

Smart home technology systems offer homeowners convenience. Rather than controlling appliances, thermostats, lighting, and other features individually or by using different devices, homeowners can control them all using one device—usually a smartphone or tablet.
Security may be enhanced because users can get notifications and updates on issues in their homes when they're away. For instance, smart doorbells allow homeowners to see and communicate with people who come to their doors when they're not at home.
Despite the cost of installing a smart system, homeowners can benefit from significant cost savings over time. Appliances and electronics can be used more efficiently, lowering energy costs.

Disadvantages

Security risks and bugs continue to plague makers and users of smart home technology. Adept hackers, for example, can gain access to a smart home's internet-enabled appliances. For example, in October 2016, a botnet called Mirai infiltrated interconnected devices of DVRs, cameras, and routers to bring down major websites through a denial of service attack , also known as a DDoS attack.
Risk mitigation involves the added effort of maintaining and periodically changing strong passwords, using encryption when available, and only connecting trusted devices to one's network.
The costs of installing smart technology can run anywhere from a few thousand dollars for a wireless system to tens of thousands of dollars for a hardwired system.
Learning to use the home system may involve a steep learning curve.

Smart Homes

Are often more convenient than traditional methods of scheduling, controlling, or accessing products

May enhance security due to notifications or alerts

Offers multiple ways of performing a certain task (e.g., lights can be turned on manually, automatically, remotely)

May result in long-term cost savings due to efficient energy consumption

May pose security risk as products are connected to networks that can be hacked

May require additional work for homeowner related to tracking additional passwords and monitoring product security

Are often more expensive than their less- or non-smart counterparts

May involve a steep learning curve, especially for those not tech-savvy

According to HomeAdvisor, it may cost up to $15,000 to fully automate an average four-bedroom, three-bath home. Fully-connected luxury homes may run into the six figures.

Home Much Does a Smart Home Cost?

As more and more smart home products are brought to market, pressure to lower prices will be put on manufacturers and their competition. On the other hand, innovations are continually expanding what smart home products can do. As a result, prices for the latest technology may remain high.

When contemplating smart home products, consider performing a cost-benefit analysis to determine whether the product price exceeds the benefits it offers you.

In general, you can start by focusing on a specific product or room. This strategy allows individuals to invest in smart technology for minimal capital. Consider the following options priced at less than $100 as of April 2024:

Google Nest Mini, the home audio and assistant device
Amazon Smart Plug, a method of automating appliances
Ring Smart Doorbell, a video-enabled camera for home security
Wyze Thermostat, a digital, wireless, programmable heating device

What Is In a Smart Home?

Smart homes can have smart speakers, lights, thermostats, doorbells, or home hubs. Smart technology can also extend to kitchen appliances and outdoor or landscaping equipment. New innovations are continually evolving what is in a smart home.

Why Is a Smart Home Important?

A smart home is important because it allows a household to become more energy efficient. In addition, it allows people to save time and perform tasks more easily and efficiently. A smart home also offers a level of convenience that's absent with the manual method of performing tasks (e.g., turning on lights yourself).

Can a Smart Home Be Hacked?

Yes. Because smart home systems often require a live network connection, they can be hacked if the security protocol is inadequate. In addition, individuals must be careful about sharing sensitive login information, such as passwords.

Is a Smart Home Worth It?

It can be. You must do the research to determine whether the potential convenience, added security, and cost savings over time outweigh the cost to install a full home system. Consider using individual smart home products first to learn how well they fit your lifestyle and budget.

Leveraging innovation and technology, smart homes simplify the daily tasks faced by homeowners and add new capabilities that may enhance their security. The smart home will continue to evolve.

Whether you control home products remotely using your phone or schedule the performance of tasks for certain times, smart homes have revolutionized the way people control the products they live with.

Stolojescu-Crisan, Cristina, et al. " An IoT-Based Smart Home Automation System ." Sensors (Basel) , June 2021, vol. 21, no. 11.

Setayeshfar, Omid, et al. " Privacy Invasion via Smart-Home Hub in Personal Area Networks ." Pervasive and Mobile Computing , September 2022, vol. 85.

Antonakakis, Manos, et al. " Understanding the Mirai Botnet ." Proceedings of the 26th USENIX Security Symposium, August 2017, pp. 1093-1110.

HomeAdvisor. " How Much Does a Smart Home Cost? " Scroll down.

Google. " Nest Mini ."

Amazon. " Amazon Smart Plug | Works with Alexa ."

Ring. " Battery Doorbell Pro ."

Wyze. " Wyze Thermostat ."