Cost, Refrigerants Shape the HVAC Replacement Market
HVAC contractors discuss repair and replacement strategies
So far, 2018 is shaping up to be a good year for HVAC contractors. Per Air-Conditioning, Heating, and Refrigeration Institute’s (AHRI’s) March 2018 U.S. Heating and Cooling Equipment Shipment Data, year-to-date combined shipments of central air conditioners and air-source heat pumps increased 6.7 percent, to 1,827,120, up from 1,711,938 units shipped in March 2017. Broken down, central air conditioner shipments increased 1.9 percent, while heat pump shipments increased a whopping 15 percent. As the season shifts fully into summer with the onset of warmer temperatures, this presents an opportunity for contractors to increase their profits with both repairs and replacement systems.
Alvin, Texas-based Clear the Air uses the $4,000 rule when it comes to recommending replacement systems, noted Jason Stom, CEO of the company. If the cost of the repairs multiplied by the age of the unit is more than $4,000, they recommend replacement, he said.
Stom noted the company does not replace single components either, unless it is on equipment using refrigerant that is being phased out. They also offer condensing unit only replacement for units that are using R-410A, he explained. These items are addressed when technicians bring up replacement with the customer.
“Our policy is that we bring up equipment replacement early and often,” Stom said. “We never want a customer to feel blindsided by the need to replace. HVAC equipment is one of the most significant investments a homeowner will make. We want to help our customer plan for equipment upgrades. On all maintenance visits, our technicians are trained to discuss the current condition of the unit as well as start the conversation about when they should consider replacement options.”
Chad Baumann, sales and marketing manager, Baumann and DeGroot Heating and Cooling, Holland, Michigan, said his company recommends replacement on systems using R-22 refrigerant.
“With the R-22 phaseout and scarcity of R-22 equipment, if we find a leak in an existing system, regardless of the size of the leak, we strongly recommend replacement of the whole system,” he said. “On R-410A condensers, there are simple and cheap repairs, such as contactor or capacitor, and, unless the unit is older than 18 years, we typically recommend repair at that level. On condenser coil leaks or compressor failures, unless under warranty, we almost always get a vote for replacement. Condenser fan motors are a wild card and are a sliding scale based on age and if we can use a universal fit unit.
Baumann said the company will replace a condensing unit by itself, but only if it is an R-410A system.
“We have had numerous condensers that have been crunched by falling ice that we are happy to replace the condenser and reuse the evaporating coil,” he said. “We can’t do that for R-22 anymore. We struggle to find and purchase dry condensers.”
Replacement always starts with a conversation with the customer.
“If we’re working on an R-22 system, we will let the homeowner know we recommend replacement due to scarcity and cost of R-22 and equipment,” Baumann said. “If they still choose to repair or recharge, we make them sign a waiver acknowledging that it is against our recommendation and that there is no warranty coverage on anything we do.”
Sean Ciaramitaro, sales, Budget Heating, Cooling & Plumbing, St. Peters, Missouri, said he recommends replacing a unit once the system is out of its warranty and/or expected life expectancy.
“We also recommend replacement when a repair, including older refrigerants, would run more than two-thirds of the cost of replacement,” he noted.
Back in the day, Budget Heating would provide an option to just replace a condensing unit, but not any longer.
“With newer refrigerants and requirements to increase SEER ratings, we’re almost forced to recommend replacing the condenser and coil at a minimum and often the furnace for proper efficiencies,” Ciaramitaro said.
Budget Heating addresses replacement recommendations in several different ways.
“Obviously, if the customer calls in for an estimate on replacement, the topic is easily discussed,” Ciaramitaro said. “In a service call situation, the diagnosing technician leaves options. Customers are always made aware of repair possibilities and costs. If they insist on the repair, then it is completed. But regardless, we leave behind [replacement] options to include economy, good, better, or best. We also educate and leave the information behind on any applicable rebates and utility savings. If they show interest, we always follow up and do offer multiple financing options.”
REPAIR OVER REPLACE
Though contractors may suggest replacement to customers, there are a number of reasons homeowners choose to repair their existing systems instead.
“Each customer we come across has different circumstances,” Stom said. “Some customers choose repair because the cost to repair the unit makes more sense financially than replacing. Repairing the condensing unit allows customers to plan for the expense of equipment replacement at a later date. Our policy is to offer customers a repair option every time — we never want to make a decision for them.”
Baumann agreed, saying cost was the most common factor as to why customers decide to delay replacement.
“In our particular case, we do work with American Home Shield,” Ciaramitaro said. “Oftentimes, customers will choose to Band-Aid repairs until the unit completely fails, expecting their warranty will cover everything. Sadly, they are often mistaken in what home warranty policies actually cover versus what remains in out-of-pocket costs.”
The current economy could also be a determining factor for consumers in whether they choose to repair or replace systems.
“When customers are more concerned about their financial security, replacement of working units becomes secondary,” Stom noted. “When the economy fluctuates, we see more customers asking us to repair to get a few more years out of their current equipment. However, we do show them benefits of replacement through energy savings and financing options. Our goal is to educate our customers on the benefits of equipment replacement while giving them the option to make the decision that best fits their family.”
Baumann said the R-22 phaseout has impacted the replacement decision more than the economy.
“However, the current up economy has made replacements much more possible,” he added.
But Ciaramitaro doesn’t believe the economy plays a huge role because customers still don’t properly plan nor expect to have to replace a system when the time comes.
“Often it happens at a time when temperatures are not ideal or comfortable, and the expense to replace can be overwhelming when not expected,” he said. “In general, customers who properly maintain their systems are able to keep up on when the time may be coming for that replacement. Customers that chose to ‘just do the repair’ often find disappointment in the repair when they spend the funds and the unit completes its life expectancy anyway.
“As a leader in our industry, we feel it is our obligation to offer a repair if it’s possible,” Ciaramitaro continued. “Providing the best service requires us to educate, engage, and allow the customer options.”
Publication date: 6/11/2018