So I have my new cave made. It is the merchant's house basically.
How do I connect the merchant to the house??

Hi 87xPPC

There's a tutorial by Best in Slot that creates Merchants. If you haven't figured it out by now, check him out on You Tube.
Place your new merchant in your new place.
http://www.youtube.com/watch?v=Hh8NFbigVTQ&feature=plcp

Hope this helps?