Heating and Air Conditioning Advice

Expert HVAC Advice With No Strings Attached

HVAC Prices Exposed

HVAC is expensive! Learn how, why, and what to do.

dollar signThe expense is puzzling.

Righteous indignation flows when customers discover what their contractor pays for parts. $400 for an hour-long repair and a part that costs $50 online? Or how about $15,000 to $25,000 to install a new HVAC''HVAC'' is an acronym for ''heating, ventilation, air conditioning''. system? That seems outrageous, but is it? You may not like the answer, but you’ll love the insight. Read on to learn what HVAC contractors are charging for parts and labor. I’ll also tell you what you can do about it.

Summary

Customers pay too much for HVAC repairs and too little for new HVAC equipment. The lack of competition on the one hand, and an excess of competition on the other, is to blame. The solution is for customers to get educated; ask lots of questions; and be willing to sweat it out.

Contents

Repair Labor Rates = Hundreds per Hour

Repair Parts Markup = Hundreds of Percent

The Real Cause of High Prices

New Equipment Prices and Its Cause

What You Can Do About It

Repair Labor Rates


Real labor rates may be double what you imagine. Before we discuss HVAC repair, let’s consider auto repair. The sign on your auto shop’s wall may say they charge $125 per hour, but they probably have a program that tells them how many hours to charge you for. If your car repair takes two hours and their program says four, you pay four. The pretend to charge by the hour, but in reality they charge a fixed feeAKA “flat rate pricing”. In effect, a flat rate auto shop has a variable labor rate that can balloon to many hundreds of dollars per hour if they work quickly.

Most HVAC contractors don’t pretend to charge by the hour, but they still have a labor rate they use to calculate their flat rate pricing—and it’s a doozy. $300 to $600 per hour is quite common. A lot of it depends on where they’re located. Why is HVAC more than auto? Compared to auto repair, HVAC repair is much more seasonal with a much higher total cost of labor.The total cost of labor includes direct cost of labor such as the technician’s wages, benefits, and payroll taxes. It also includes indirect cost of labor such as office staff, the service vehicle, and tools. They charge accordingly. Of course they’re never going to admit to charging more than some lawyers, so they hide their “internal labor rate” behind flat rate (fixed fee) pricing and pretend like the parts are to blame for their bloated bill.

Repair Parts Prices


Repair parts are usually marked up on a sliding scale like this one. Contractors using that scale will charge you $10 for a part that costs them $2. They’ll charge you $225 for a part that costs them $100. You’ll never know that of course. Just as they hide their labor rate, most HVAC contractors hide their “internal parts markup” behind fixed fees, AKA “flat rate pricing”. Some contractors even give the parts they sell made-up names to keep you from finding them online. “We charge by the job, not by the hour!” (and not by the part) is the turn of phrase that turns a profligate profit.

If you want to know what a contractor paid for a part, you may be able to look it up online. If it’s a common part that doesn’t require a license to purchase, you can probably buy it online for around the same price the contractor paid. My guess is that 80% of all repair parts are in this category. Figuring that out may be difficult if your contractor gives the part a made-up name, so you may want to take pictures of the part and the box it came in. If the part is widely available from well-known online vendors, then there’s a good chance the online price is close to what the contractor paid.

The Real Cause of High Repair Prices


Though many contractors abuse it, flat rate pricing is not the real cause of high repair prices. Restaurants have fixed prices too, but their customers can view menus before they order. That forces restaurants to compete on quality and price.

When it comes to HVAC repair prices, most contractors don’t compete in a meaningful way. They don’t have to because they refuse to tell you their repair prices until after they show up. It’s not as though they couldn’t. Flat rate pricing is perfectly suited to posting online, but they refuse. It’s as if they’re saying, “You can’t see our menu (repair prices) until you pay our cover charge (diagnostic fee).” Then they say, “Order from our menu now or extend your misery.”

Contractors don’t say that aloud, but that’s the reality many customers face. It’s a subtle coercion that forces customers into a corner and, importantly, reduces competition. Lack of competition is the real cause of high repair prices in this profession. How do contractors get away with it? Like this…

The Typical Customer’s High-Priced Reality:
  1. Many customers incorrectly assume that a highly-rated contractor must be competent and reasonably priced. So the only questions they usually ask are: “How much is the diagnostic fee?” and “How quickly can you come?”
  2. Most contractors respond to the first question with an absurdly cheap diagnostic fee that may not even include a complete diagnosis. That causes many customers to think repairs are going to be cheap too. As you can see here and here, this tactic is an open secret. (Internet Archive may be slow to load.)
  3. Contractors may answer the second question with “Right away!”, but that might be impossible if they only employed trade-school-trained technicians. Techs like that are expensive and scarce. So they often send on-commission “technicians” who haven’t been to a real school or even passed a real test.
  4. Contractors could easily post their prices online, but most only reveal those prices after they show up. Then customers must choose: Pay a repair price that might be absurd OR wait for another contractor to show up. Most customers feel trapped by their urgent need for relief, so they choose to pay.
  5. The relief of being comfy again, and their own confirmation bias, cause most customers to dismiss their suspicions. Some even post positive reviews. Few customers want to believe they’ve been ripped off. Fewer still post negative reviews. And so the cycle starts again with the next customer.

New Equipment Installation and Its Real Problem

You just paid $15,000 to have a new HVAC system installed. How much did the equipment, parts, labor, permit, etc. cost the contractor? $7,500… maybe. Some contractors use an old rule of thumb called “double your money”. It says that the customer’s cost for new HVAC should be double the contractor’s on-site costs. That means properly designed, installed, and tested HVAC equipment should probably cost customers between $15K and $25K locally.

Actual customer cost is more like $10K to $20K locally. That’s because, unlike HVAC repair, most customers get multiple bids for new HVAC equipment installation. That competition pushes prices lower. Most contractors have reduced overhead and equipment cost as much as possible. So the only thing left for some contractors to do is to hire piece work installersPiece work installers get paid by the job. So the faster they install your new HVAC system, the more they make per hour. Even installers who aren’t officially piece workers can earn bonuses for installing faster. Naturally they become experts at cutting corners. The systems they install almost never run as efficiently or last as long as they should. and race to the bottom. If these prices are accurate, then race to the bottom they have!

Accordingly, the real problem with new equipment installation isn’t the high price. It’s the low price. Trade-school-trained installers and technicians who’ve passed skills tests are expensive. Proper pre-install calculationsPre-installation calculations may include Manual J and Manual D calculations. Those calculations ensure that your equipment and ducts are properly sized. Few contractors perform these calculations when replacing an existing HVAC system. and post-install commissioningPost-installation commissioning is, in part, the process of verifying that a new HVAC system is running as it should. Most systems are not tested this way and do not deliver their rated capacity or efficiency. are too. School, skills tests, calcs, and commissioning aren’t required locally! And most contractors can’t afford such high level personnel and procedures while also being competitive. So most are just competitive.

What You Can Do About High Prices


The solution to high prices is NOT to indiscriminately hassle contractors. There’s no doubt many contractors gouge, but most make less than 10% profit. Nor should most people try to fix their HVAC themselves. That could be dangerous. There isn’t just one solution to high prices, but one place to start is by bringing back real competition to repair prices and technician competency. You can help bring that about by asking lots of questions graciously and wisely:

Is your initial diagnostic fee all-inclusive or can there be secondary diagnostic fees? What’s your internal labor rate and parts markup? How do you design new systems? How do you test the systems you’ve installed? What’s the warranty? Which trade school did your installers and technicians go to? Have they passed a skills test? Are technicians rewarded for upselling? Are installers rewarded for working faster? Can I watch as they work? Can I keep the old parts?

The rare contractor who answers questions well might charge less for repair and more for installation. They might be pretty booked up too. Therefore, to help solve some of the real problems of HVAC, it might not be enough to ask uncomfortable questions. You might also have to be willing to suffer a little longer in your uncomfortable home while you wait for that booked-up contractor to make repairs and/or pay them a higher price for new equipment.