A broken air conditioner is like a medical emergency: unexpected, urgent and costly. If your air conditioner is older, you’ve got a tough decision: to repair or replace. Unfortunately, I just went through this.
I knew we would likely replace our furnace and air conditioner in the next couple of years. They are 11 years old, original to the house and not quality models to begin with. The previous homeowner had replaced several failed parts in the past three years, but the signs of a full replacement were there.
The first power bill covered just seven days after we closed on the house at the end of a typically hot Utah August. This house used more power in seven days than the one we were selling used all month. I later found out the AC motor and fan blade were replaced with parts that weren’t quite right. Not only was the blade undersized, but it was spinning the wrong way. Rather than sucking cooler air through the AC coils and blowing hot air out through the top, it was sucking air in through the top and trying to blow it out through the coils. That makes for a terribly inefficient system, which is partly why the power bill was so high. I got the blade spinning the correct way, but by then September started to cool and we didn’t use the air conditioner much.
Dreading the summer’s first power bill
Summer temperatures started to come around in the past two weeks, reaching the upper 80s. Although neighbors have run their air conditioners for weeks, my wife and I are quite happy opening the windows until the outside temp gets in the mid-80s before turning on the air conditioner. I planned to watch the bills to gauge how inefficient the AC is while running properly, and therefore how quickly I would want a replacement.
We first turned on the air conditioner two weeks ago. It was running most of the afternoon by the time I came home from work, and while the house was cool, the air from the vents wasn’t as cold as it should have been. I went to make sure the fan blade was spinning correctly. It wasn’t spinning at all. The compressor was humming like a champ, and the coils had plenty of heat to dissipate, but the fan just sat there. I did what diagnostics I could (you can YouTube anything), then called the experts.
The verdict: The fan module was bad. The technician — who works for a company we have trusted for 10 years — suggested a new motor, the correct size fan, and a new capacitor. Total charge for parts and labor: $527.
This is when I start to consider total cost of ownership. Do I want to invest $527 in a unit I plan to replace in the next two to three years and that I worry is going to kill me in power bills anyway, or do I want to put that money toward a more energy-efficient replacement today but pay the big bucks?
Weighing my air conditioner options
On one hand, I could get the repair done and monitor my power bills. Another unknown is that the tech can’t test my refrigerant pressure unless the fan is working. If it needs additional R-22 refrigerant, that could be another $85-$170 depending on whether it was low and by how much. So I could be sinking anywhere from $527 to almost $700 just to get it running properly. Then how would I feel if my power bill was through the roof anyway? Would I be able to avoid sunk cost bias and spring for a new unit this year or next, or would I put off replacement further because of that investment?
On the other hand, if I am going to replace the air conditioner, I would also replace the furnace. So I was looking at a much higher price point. I had a guy run an engineering analysis and give me a quote. He recommended I replace the furnace with a 5% more efficient model that has a two-stage blower and swap out the AC from a 13 SEER rating to a 17 SEER rating heat pump. A utility analysis suggested the new system should use about $400 less in gas and electricity based on average annual usage compared to the current setup. Of course, that assumes my current unit runs like it’s supposed to, and I know it doesn’t.
Cost for the upgrade: Just over $12,000.
Ouch.
That doesn’t include $750 in utility rebates (and there are no more federal tax credits), but it’s about $2,000 more than I was hoping.
To repair or to replace, that is the question
So you wanna be a homeowner? This is my new heat pump, one half of a $12,000 purchase. I sure hope it lives up to the energy-efficiency hype!
As I considered my options, I had to look at the long game. It wasn’t a matter of if I would replace these things, just a matter of when. I didn’t have time to save up for a full replacement, but luckily there is a 0% loan for 18 months with equal payments ($675/month in this case). Yes, it would mean going into debt, but it wouldn’t cost me anything more than if I started saving up cash now to replace the system in 18 months. Plus, I wouldn’t have to drain my emergency account to pay up front. That was what finally tipped me toward going with a new system.
I don’t expect to have buyer’s remorse over getting a new system I knew was coming eventually, but I may have had buyer’s remorse if I paid to repair the old unit and it was still an inefficient dog. The new units come with a 10-year warranty covering all major parts and all the labor for major and minor repairs. I won’t have to worry about a big hit on either of those things for a whole decade. That’s peace of mind.
Of course, I would rather put this money toward another investment, but this is one of the risks you accept with homeownership. It’s also why it pays to have plenty of gap between your income and expenses. It’s much better to be able to make the wiser long-term decision than be stuck with a short-term solution you may not feel good about.
I’ll continue to track my utility bills and report back when I get some comparison data.
What would you have done if you were in my shoes?
I would have repaired. I ran a chemical plant before early retiring and we had repair/replace decisions all the time. The plant had been in operation for nearly 100 years but almost all the equipment was only a few years old because you have to constantly replace it as it ages. Your house is the same, all the appliances will wear out eventually and the decision to replace or repair isn’t really impacted by the fact that you know you will replace the HVAC system someday. It is what has the cheapest life cycle cost. Generally a good rule of thumb is that if you can extend the existing unit’s life without spending more than a fourth of the replacement cost then you should repair it. Conversely if it costs over half of a new unit to repair it then you should definitely replace it. If it is somewhere in the middle it is a judgement call. In your case spending $750 is less than 10% of the replacement cost of a unit that probably won’t last over 15 years. $750 is a no brainer to me, if it will run another three or four years for $750 then you can defer that $12,000 into your more affluent future. You also will be buying a better unit in three or four years because the technology is advancing all the time and that $12,000 new unit will be old tech in four years that is more expensive to operate versus what will be available then. That’s just my opinion and there are other things to consider. One, having an unreliable unit like your old repaired one would be has a hassle factor cause it will probably break when you have a company, a new baby or a home wedding planned. Also the new unit will be cheaper to run so you don’t get those savings if you replace. And finally you may feel like the old unit won’t last three or four months much less three or four years and if that is the case then you really have to replace it. Anyway, that is an engineers long winded analysis. Oh, and I didn’t have to convince my wife to agree with me when I was replacing plant equipment, just my CEO and he was way easier than her!
I appreciate the long-winded analysis, actually! That seems like a reasonable rule of thumb, 25% or less is a fix, 50% or more is a replace and in between is a judgment call. I really wish I was able to run the old one for a few months before I had to make the decision, because then I could have known what the actual cost to run the unit was. Then I really could have done a better job of assessing the savings of the new vs. old. I do know the previous homeowner ran both the furnace and air conditioner HARD for 10 years, leading to early failure of the parts that were replaced when we moved in. (More on that in a future post, I’m sure.)
Good point on how delaying a few more years also would have let the technology mature more. I doubt HVAC is clipping along at Moore’s Law levels, but I’m sure it’s improving every year or two. In theory, tomorrow’s advanced units should remain about the same equivalent price as today’s advanced units (or be cheaper) and today’s tech should drop in price over time. But again, I don’t know if that’s the case with HVAC.
I’ll say this, having gone through this experience has given me several lessons learned, which will also be another post. I’m going to put those lessons to good use on several other things I know will need to be done eventually by getting into research mode now so I know what to expect later.
We had to replace our entire air conditioning system less than a year after purchasing the home. Luckily it only ended up costing $6,600 and we got a great 0% interest offer for 18 months. We found out quickly after getting our system that our electrical bill basically dropped in half which gets us to a break even of 5-6 years.
Nice! I so wish I had good comparable data on the electric use. I did talk to a coworker who just got a quote from a different company for a very similar furnace and AC replacement, and it was also $12,000. So I feel good that my system wasn’t way off the mark.
I know I’m technically back in consumer debt by going with the 0% for 18 months deal, but I feel like that’s a no-brainer if you know you have the money and will pay it off without accruing interest. It puts me at less risk by not draining my savings and emergency accounts to cover the cost, although in an ideal world I would have saved up for this in the first place!