By James Buchanan
My dad is a relatively frugal man. And so I was rather surprised when he could not tell me the cost of his newly-installed furnace. In fact, beyond knowing total cost of the package, he had no idea what the individual costs were for labor, equipment, and any other charges included in the total bill.
I wondered if my Dad's experience was a common one, and whether it would make a difference to consumers in the high stakes negotiation of getting a new furnace if there were a Blue Book-like price listing for furnaces. After all, if you have a better understanding of what a furnace costs and can compare apples to apples, you would be in better position to know what the contractor's markup for the furnace is and then try to negotiate that price down. Right?
But, in fact, there is no Blue Book for furnaces. [Update: Check out our 2013 Furnace Price Report] According to all of the experts we talked to for this story, most contractors will not break down their bids into individual costs. Essentially, the cost is what it is.
However, Jason Todd, CEO of Alpine Home Air Products, a Web-based direct-to-consumer heating and cooling retail store, argues that times are changing and consumers are demanding more. In particular, people want to know what they are buying and how much it costs, but the HVAC industry simply isn't providing this information, and therefore, is not keeping pace with what people want or expect.
"[Consumers] want to understand why the bid is what it is and what they are getting for their money, but this information is not well communicated in this business," he said. "It isn't so much because contractors don't want to, but they haven't needed to, but times have changed because consumers have far more access to information."
Among the experts we talked to, there is a divergence of opinion about whether consumers should care about the cost of the furnace. One side argues that the furnace is a negligible portion of the overall cost and that consumers should focus on the total services and cost of a contractor's bid. By contrast, others, such as Todd, argue that while consumers should weigh services and total cost, it is also important to know the cost of the components in a bid -- including the furnace itself -- to truly compare bids between companies.
The Industry's Point of View
The HVAC industry includes contractors, distributors, manufacturers, and each of their various representative organizations. And while there is great diversity within these groups in terms of business practices and so on, there seems to be general agreement that the total cost of a bid and the value- added services it includes are far more important than the price of the furnace. The industry position is that the most important factor in a furnace installation is hiring a responsible contractor who will do a proper sizing analysis for the size of the furnace, ensure all facets of the installation are done well, and stand behind the work to fix any issues that may arise. Proper sizing and installation of a furnace, they argue, will lead to greater heating efficiency and save more money in heating bills over the life of the furnace than saving a few dollars in the beginning on the furnace's actual cost.
"It's a furnace and you can put it in three ways: right, almost right and wrong. The homeowner has to be careful in terms of the contractor they choose because the furnace will only be as efficient as the contractor," says Erik Rasmussen, CSME, Canadian Education Director for HVAC Excellence, a group that promotes education and quality standards for the HVAC industry.
Glenn Hourahan, VP of the Research & Technology division of the Air Conditioning Contractors of America, a group that promotes issues important to HVAC contractors, agrees with Rasmussen. He adds that developing a comprehensive price list -- such as the Blue Book for cars -- is simply too daunting a task given variances between homes, regions, and brands. "You can probably ballpark the costs," he said, "but there are so many differences that it's impossible to provide an accurate cost across the board. The biggest cost, really, is the contractor that you select to do the job."
There are also those who argue that the price of the furnace -- roughly one-third of the total cost for an installation -- is only a negligible portion of the overall cost of the project.
"Anybody who goes out to buy a furnace is making a serious mistake," said Harvey Sachs, PhD., a Fellow in the Buildings Program of the American Council for an Energy Efficient Economy. "What you really want to buy is an efficient heating system. The furnace needs to be the right furnace; it needs to fit your house and its particular heating needs.
"Assume you are intelligent and get three bids from three contractors.... [what matters] is getting
a good job with the right equipment and then the total price, rather than focusing exclusively on the
Each of the industry organizations mentioned above offers advice and a number of tools to help consumers select the best contractor for the job. Perhaps the most helpful resource is the Quality Installation Checklist offered by the Air Conditioning Contractors of America. According to Hourahan, consumers can use the checklist to better understand the questions they should be asking when they shop bids as well as to better interpret the estimates they receive.
The bottom line for Sachs, Hourahan and Rasmussen is that contractors base their prices on the quality of the installation rather than the price of the furnace, so the price of the single piece of equipment doesn't matter. They might even say that a reputable contractor who has the education and experience to a full-package response to your home's heating needs is priceless.
The New Contrarians' Point of View
A furnace is likely to pass through three hands prior to being installed in your home. The manufacturer sells the furnace to a distributor with a markup; the distributor then sells it to the contractor with another markup; and then the contractor sells the furnace as part of the installation to you, with yet another a markup. The original price difference for similar models between different manufacturers, says Rasmussen, tends to be no more than $100 to $200.
However, there can be considerable variation in the markup charged by various contractors. One New England-based HVAC supplier who we spoke to for this story (he did not want to be identified due to the sensitivity of the topic) said there is no single standard markup for furnaces. Generally, most contractors mark up the cost of equipment (e.g. the furnace, ducts and etc.) by 30 to 40 percent. "That may seem like a lot," he said, "but these guys are wrestling with their own overhead and have to cover the warrantee they are providing their customers because they have to stand behind their work."
Todd, CEO of Alpine Home Air Products, agrees that markups can range between 30 and 50 percent and may be even higher in some parts of the country.
Laurence Jacobs, Editorial Manager for Craftsman Book Company, publisher of the National Home Improvement Estimator, a book that helps contractors estimate the cost of materials and labor, puts it more succinctly, "We sell our book to contractors who will use it to estimate what their costs will be in terms of labor and materials, and then the contractor charges whatever they feel they can get away with."
Jacobs went on to add that contractors, if left to source the furnace on their own, will often choose the one that allows him to make the most money. His advice is that consumers should do their own research to figure out what a good furnace is and then tell the contractor what they want.
In terms of what to expect to pay for the furnace, he advises consumers to look at what direct-to- consumer companies are charging as well as any other source (such as the furnace prices available on this website. To then understand what the total installation cost will likely be, consumers can refer to the National Home Improvement Estimator, which will give them some idea about how long the installation will take and the related charges.
As a side note, it is rare that a contractor can just drop in a furnace and walk away. There may need to be duct work and other related tasks. A heat load calculation, for example, may be necessary to properly size the furnace, and an energy audit to see where your house is losing heat may guide you to a more efficient system overall.
In any event, both Jacobs and Todd agree that it is important to really understand what a contractor is going to put in your home. In fact, providing consumers a choice and better understanding of the individual costs to install a furnace are fundamentals of Todd's business model, he said. His company will provide customers with resources to properly size a furnace to their house, sell them a furnace, and then refer them to contractors who can do the installation.
"Yes, of course it is important for consumers to know what the costs are and consumers want this information, which is why you have Lowes and Home Depot and all of these do-it-yourself-type stores," said Todd.
Asked about the traditional model of installing a furnace, like my dad experienced, Todd responded, "People don't buy like that anymore; they don't want to buy like that. So contractors need to do a better job of informing and educating their customers. I should add, though, that there are things that consumers cannot do and they will need a contractor, but there are things they can do on their own. We recognize that consumers want choice and to be able to do their own research, and this company is their option to do that."
Comments made by the anonymous HVAC supplier mentioned earlier in this story, underscore what Todd is describing. He said that many contractors are moving toward a flat-rate fee-per-service bidding model where they offer customers an a la carte menu of services from which to select. Each fee is priced according to books such as the National Home Improvement Estimator, and a total charge is calculated.
"The contractors that I know of who are moving to a flat rate fee model are doing so due to what I call the "Home Depot Effect," he said. "People are going out and buying their own furnace online and then just asking the contractor to install it."
In the End
The bottom line is that you need to feel comfortable that you getting not only a good deal on the furnace, but a quality installation at a good price as well. There are more options than there ever have been for how to buy a furnace; however, don't be penny wise and pound foolish. The furnace you buy needs to be the right one for your home to ensure you don't spend the next 14 to 20 years paying for an inefficient heating system.