HVAC Prices Exposed HVAC is expensive! Learn why and what to do.

The expense is puzzling.

Righteous indignation flows when customers discover what their HVAC''HVAC'' is an acronym for ''heating, ventilation, air conditioning''. contractor pays for parts. $800 for an hour-long repair and a part that costs $100? Or how about $30,000 to install a new central heating and air conditioning system? That certainly seems outrageous, but is it? You may not like the answer, but you’ll love the insight. Let’s find out how much HVAC contractors are actually charging you and what you can do about it.

Repair Labor Rates

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Real labor rates may be double what you think. Before we discuss HVAC repair, let’s consider auto repair. The sign on your auto shop’s wall may say they charge $150 per hour, but they probably have a program that tells them how many hours to charge you for. So if they spend an hour fixing your car but their program affords them two, you pay two. They allow you to believe they charge by the hour, but in reality they charge a fixed fee that’s often referred to as “flat rate pricing”. In effect, a flat rate auto shop has a variable labor rate that routinely balloons to many hundreds of dollars per hour.

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

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Repair parts are often marked up on a sliding scale like this. Contractors using that scale may charge you $10 for a part that costs them $2. Or they may charge you $225 for a part that costs them $100. They’ll never you 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.

Why Is HVAC Repair So Absurdly Expensive?

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There may be dozens of HVAC contractors in your area. Even so, when it comes to HVAC repair prices, they don’t actually compete in a meaningful way. Contractors don’t have to compete because customers have no idea what contractors charge for repairs and they stubbornly refuse to say when asked. Add lots of desperation to the mix; top it off with a little confirmation bias; and absurdly high prices are the natural result. It happens all day every day…
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A Hypothetical Customer’s High-Priced Story
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1. Gaggle, Yowl, and most other review sites have mastered the art of manipulation. Even so, there aren’t many alternatives. And besides, how bad could a five-star contractor be? So the customer calls one of those site’s highly-rated HVAC contractors hoping and praying they’re competent and fairly priced.
2. The customer asks, “How much to diagnose?” The contractor says, “Just $49!” He fails to mention that his fee may not include a complete diagnosis. What’s worse, his cheap diagnostic fee gives her false hope that the repair will be cheap too. As can be seen here and here, this tactic is an open secret.
3. She then asks, “How much to repair?” He says, “We have to diagnose before we can tell you that.” His response is a half-truth. While he may not be able to tell her what her particular repair will cost, he certainly could post his flat rate pricing menu online just like restaurants do. He could, but he never will.
4. Finally she asks, “When can you come?” He says, “Today!” They’re in the middle of a terrible heat wave and there’s a severe shortage of skilled technicians. So the only way he can respond so quickly is by sending a so-called “tech” who’s never been to trade school and hasn’t even passed a skills test.
5. The tech arrives and immediately calls his boss for help. He then quotes $1500 to add Freon to her AC. He says it’s Freon, but it’s actually fake Freon.Most customers can't tell the difference between real Freon and cheap Freon substitutes, AKA ''fake Freon''. That's because the problems fake Freon cause aren't usually noticeable at first. In a worst-case scenario, fake Freon can cause compressor failure. That failure can take months or even years to manifest, so most customers never find out that it was the fake Freon that ruined their air conditioners. Then she must choose: Pay a crazy price now or wait for another contractor to show up later. Feeling trapped by her desperate need for relief, she pays.
6. The relief of being cool again allays her suspicions. Besides, he was such a nice young man. He failed to mention her AC is slowly leaking its fake Freon, but she won’t know that till she turns it on for the first time next summer. So she posts a five star review and the cycle begins again with the next customer.

As the story illustrates, the HVAC contractor who shows up first during a heat wave or cold snap has a virtual monopoly on that customer’s situation. Cheaper repairs will only come when customers break the monopoly by waiting for second opinions, even if that means being uncomfortable for days. More accurate reviews will only come when customers start posting negative reviews, even if that means risking retaliation from the contractor.

Why Is HVAC Equipment So Expensive Cheap?

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Unlike HVAC repair, most customers get multiple bids for new HVAC equipment no matter how hot or cold their house is. That pushes prices lower, especially during the off seasons. Locally at least, new HVAC systems often cost between $15k and $30K. That may seem just as absurd as repair prices. However, if contractors were performing installations “by the book” then new HVAC systems would cost thousands more than that!

A “by the book” installation of new equipment might include utilizing installers who graduated from a real trade school. Installers like that are expensive. It might also include performing extensive 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. Few even know how. and post-install commissioning.Post-installation commissioning is, in part, the process of verifying that an HVAC system is running as it should. One way to do that is by using software like measureQuick. Software like that requires skills and tools that very few contractors possess. Consequently, most HVAC systems do not deliver their rated capacity or efficiency. Most contractors don’t even own the necessary tools. Locally at least, such high level personnel and procedures aren’t even required. So most contractors hire glorified day laborers and skip the procedures.

Most customers incorrectly assume the aforementioned personnel and procedures are already “baked in the cake”, so they don’t even ask about them. They just want a good price. Most contractors have reduced overhead and equipment cost as much as possible. So the only way for some contractors to be cheaper than others 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!

How You Can Bring About Change

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The solution to high repair prices and poorly installed equipment is NOT to indiscriminately hassle contractors. Nor should most people try to work on their HVAC. Nor is the government going to save us. They’re actually making it worse! There are no easy answers, but a good place to start is by asking your prospective contractors questions like the ones below as they may apply to your situation. Their answers, or lack thereof, should be very revealing.

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 your questions well may be pretty booked up. Therefore, in order to bring about real change to your personal HVAC situation, it may not be enough to ask uncomfortable questions. You may also have to suffer a little longer in your uncomfortable home while you wait for that rare contractor to show up. Or, if you’re buying new equipment, you may have to pay an uncomfortably high price. Real change is rarely comfortable.