As I mentioned in my homeownership and priorities post, one housing project that we wanted to tackle sooner rather than later was replacing our HVAC unit. Within months of moving into our new house, we had to shell out a thousand bucks to repair our 20-plus-year-old HVAC unit when it broke on a 108-degree day. While we haven't had a problem since (knock on wood), the fellow who came out to fix the problem for us gave us a ballpark estimate of $7,000 for a new unit.
Since we had just paid about 15 percent of that amount for a single repair, the peace of mind associated with having a new unit that would hopefully be problem-free (for several years, at least) sounded like a bargain to us.
We held off for a few months because we thought we might get solar panels and do everything at once. But it turned out that the financial benefits of solar panels were not significant enough for us to pull the trigger on that in the near future.
So we went back to our original plan of simply getting a new HVAC. We had been setting money aside ever since our original repair and with over $23,000 in our online savings account as of my 2014 update and 2015 goals post, we were ready to pull the trigger. Then I got an email from our utility company about their Cool Cash rebate program.
Essentially, if we went through this program, we could receive a rebate of up to $400 directly from our utility if we installed a unit that met their efficiency criteria. Bonus: The utility would refer us to a contractor that met the standards of the Electric League of Arizona, a statewide non-profit trade association dedicated to quality contractor referrals, consumer advocacy, and efficient use of electric energy.
Getting the estimate, Part I: tonnage required
When I called the utility's referral service, the representative asked some questions to verify our eligibility for the program and submitted the referral request. Within 15 minutes, I received a call from a local, family-owned HVAC company. They were able to set up a time the very next day to assess our home and provide an estimate. (Ha! They're not super busy this time of year.) Twenty minutes later, I received a follow-up call from the utility company to verify that the HVAC company had, in fact, contacted me.
When the contractor came out, he initially told us we would likely need a 4-ton unit.
Note: This is not how much the unit weighs! The tonnage of an air conditioner refers how many British thermal units (BTUs) of heat the unit can remove from your home per hour. The term comes from how long it takes to melt a ton of ice, since that is how buildings were cooled before air conditioners were invented. A 1-ton unit removes 12,000 BTUs of heat per hour and would melt one ton of ice in a day, assuming the ice melted uniformly.
In terms of tonnage, buying a unit that is too small won't cool your home efficiently. Buying a unit that is too large means spending more money for something you don't need. After crunching all the numbers, our contractor returned the next week with the good news that we only needed a 3.5-ton unit.
According to the measurements the contractor took, our system needed the capacity to remove just under 39,000 BTUs per hour. A 3-ton unit would remove 36,000 BTUs, not quite enough. A 4-ton unit would remove 48,000 BTUs, a waste of money given our needs. A 3.5-ton unit would remove 42,000 BTUs, a comfortable buffer. Since a 4-ton unit would cost about $6,000 and a 3.5-ton unit would cost about $5,500, we saved about $500 simply by buying the appropriately-sized unit.
Getting the estimate, Part II: SEER rating
The next number to consider is the unit's SEER rating. SEER stands for Seasonal Energy Efficiency Ratio. SEER is calculated as the ratio of cooling in British thermal units (BTU) to the energy consumed in watt-hours. Basically, the higher the SEER rating, the more efficient the unit. We wanted the most energy-efficient unit they offered for a variety of reasons:
Lower monthly bills (during the months we run our air conditioner)
Higher potential resale value
Using less energy is better for the environment
The highest SEER rating available included a 10-year parts and labor warranty at no additional cost
The highest SEER rating available through this contractor was 15, so that's what we chose. The total cost of the install was $5,536 and that price includes:
The new unit
Removal and disposal of the old unit
Installation of the new unit
A new stand for the unit (the old one was the wrong size)
Modification of the existing elbow (the part that connects your unit to your ductwork)
A new filter grill (since the old one had openings that were spaced too close together)
A new thermostat
The aforementioned 10-year parts and labor warranty (which is through the manufacturer, so any company who services our air conditioner brand will honor it)
Selecting the 15 SEER rating qualified us for a $200 rebate from our utility company and would provide an estimated savings of 33 percent on the portion of our electric bill attributable to running the unit. A 14 SEER unit, the next step down, would provide an estimated savings of 29 percent and be about $1,200 cheaper, but it would not come with a 10-year warranty and it wasn't eligible for a rebate. In addition, choosing the unit that was eligible for the rebate meant that our utility would continue to monitor our interactions with the contractor — good for added peace of mind.
Next, we did some comparison-shopping to make sure we weren't paying too much. The home improvement stores sell HVAC systems and have installation programs, but didn't carry 3.5-ton systems with the SEER rating we were interested to buy. As a result, we would either have to buy a less efficient unit for about the same price or pay more for a 4-ton system, which didn't appeal to us. Research on other independent contractors didn't result in a significant price difference, and we were also able to verify that the cost we were quoted was average for our area.
The bigger picture
Our next step was to do some investigation into how that would affect other work we were considering — namely, the installation of solar panels. We wanted to make sure a new HVAC unit would be compatible with a solar panel system so we could have all the roof work done at the same time. (HVAC units are installed on the roof in my area of the country.) But when we got the bid from a solar contractor, we decided that solar panels didn't make sense for us at this time.
Good timing never hurts
With the decision on solar panels behind us, we could move forward on replacing our HVAC unit. And our timing could hardly have been better because we had gotten an email from our utility company about their Cool Cash rebate program around that time too. That definitely made the decision to replace the unit a little easier.
The utility recommended a reputable contractor to us, monitored our interaction with them, and made sure we bought a unit with high efficiency standards. You can read more about that part of the process in Part I; but in this installment, I'll discuss the installation, the rebate process, and timing for replacing heaters and air conditioners.
Installing the unit with a “cooler” thermostat
The install took place about two weeks after the contractor confirmed their estimate. Most of what drove the timing of the installation was the fact that the contractor had to reserve a crane through another company. We used this time to investigate thermostats because the one we would get through the contractor wasn't programmable. And while there is some debate about whether programmable thermostats actually save money, we also wanted to explore some new features we had heard about. And honestly, in a climate as extreme as ours, we thought a programmable thermostat would be a good fit for us.
WiFi — Better features in action
The thermostat we ultimately bought cost an additional $150, but this was offset somewhat by not buying the thermostat from the contractor that installed the unit. The thermostat we chose is programmable, but it also connects to our home's WiFi. I installed the thermostat's app on my phone so, if I end up leaving the house earlier or later than usual, the system knows to adjust the temperature. Similarly, if I am late coming home, the system doesn't start up until my cell phone connects to my home WiFi. This means that I can run errands without worrying that my AC is wasting money cooling an empty house.
Connecting it all up
The install itself was very exciting! Men on the roof, a crane swinging huge metal boxes around, power drills in the hallway.
The whole process took about five hours from start to finish. They disconnected the unit and thermostat, removed them both. Then they installed all the new equipment and tested everything.
They tested the thermostat on manual control only because Jake and I needed to connect it to the WiFi ourselves and decide how we wanted it to operate.
Here is a picture showing the crane swinging the unit over 30 feet above the ground! Whoa.
How the warranty process works
About two weeks after the install, the contractors sent us our copy of the manufacturer's warranty, which they filled out and sent in on our behalf. The unit we bought came with a 10-year warranty that covers parts and labor (but not maintenance). Since it is through the manufacturer, any contractor who services that brand will work with us. That means we only have to pay the annual maintenance and, if the unit breaks, maybe a service-call fee. After what happened last summer, that was music to our ears!
How the rebate process could be better
[Note: The rebate part of the process may work differently depending on the utility company.]
Our contractor submitted the rebate documents, and we received a rebate check directly from the utility company about six weeks later. The contractor told me the other utility in our city reimburses the contracting company, not the customer. So when they do replacements under that utility's program, they offer an instant rebate to the customer and then the check comes to them after they fill out the paperwork.
That seems to be a slightly better system, since they offer the rebate up front and are then on the hook if they don't fill out the paperwork. It also benefits the consumer because they see the savings right away instead of having to wait a month and a half for a physical check to be mailed to their house. (And why couldn't we just get a bill credit for the amount of the rebate again?) But it's not like I had a choice, and everything worked out in the end anyway. Huzzah!
What about the numbers?
Between the fact that we bought a high-efficiency unit that is the right tonnage for the size of our home and the programmable thermostat, we expect to save at least $400/year. The unit was approximately $5,600. So subtracting the $200 rebate and the $100 reward redeemed after paying with a credit card, we think the unit should pay for itself within 15 years.
Assuming the old unit (which we'd paid $1,000 to repair the previous summer) would need ongoing repairs due to its age, we'll come out ahead much sooner than that. Since the previous unit was over 20 years old, we can assume $8,000 in savings just from the a/c (not counting savings from operating the heat or any repairs).
When to replace your heater or air conditioner
The timing of our replacement was due to two main factors. First, we didn't want to finance the purchase, so we decided to pay for everything using a travel rewards credit card. (We plan to redeem the points for $100 cash back on our next getaway.) But in order to do that, we needed time to save up the full amount in our online savings account so we could just pay the credit card balance off in full with no interest.
The second reason we went forward with the replacement when we did was because in early- to mid-spring, we aren't using heat or air conditioning. That meant it would be comfortable in the house during the install and comfortable outside the house for the contractors who were working so hard! Additionally, if the contractors encountered a problem that took a day or two to resolve, we wouldn't need to worry.
I asked the fellow overseeing our install what the best time of year is to replace an air conditioning unit, and he said winter or spring because the repair companies/contractors aren't very busy and tend to offer the best deals. He said that if you wait until summer, then one of two things is likely to happen: You will pay more for your unit or it will break and you'll elect to repair it instead of buying a new one (even if a new unit is more cost effective) because you'll be like “OMG, it's 105 degrees! Need air conditioning now!”
If you live in a part of the country where air conditioning isn't really a thing but heating is very important, then you reverse the timing and do your replacement in summer. And don't skip on the annual maintenance, which can alert you to an aging unit so that you have time to save for a unit on your own terms. It's always best to head problems off at the pass, right?
Have you replaced a heater or air conditioner in your home? Did it help you save on your utility bills? Tell us about your experience in the comments below!
Honey Smith has been reading GRS since at least 2008, right when she got her first â€œrealâ€ job and started getting serious about finances. She and her husband Jake are in their mid-30s and recently bought a home together. Currently, she manages graduate programs at a large state institution, and he is an attorney at a mid-sized firm.
Between them, they have paid off approximately $30,000 in consumer debt since she started writing for GRS in 2012. However, they still have nearly $200,000 of student loan debt, so she will continue to chronicle their debt-paydown journey. In addition to personal finance, Honey is interested in vegetarianism and cooking, gardening (despite living in the desert and having a black thumb), issues in higher education (including the student loan bubble and the slow death of tenure), and animal rights; however, her heart lies with fantasy novels, trashy TV and Skyrim.