Seven Points To Examine When Replacing a Home Component
Dear Monty: I will be selling my house within the next four to five years. The compressor on my A/C went out. Should I repair or replace the whole unit? The current unit is a little over 12 years old, and the compressor repair will be under warranty for one year. Prices: $2,000 to repair, $6,000-$7,000 to purchase a new unit.
Monty's Answer: There are several factors to consider in determining whether to repair or replace a home component. The factors vary depending on the element. With a compressor for air conditioning, here are the considerations.
No. 1: Price Is a Factor. The additional considerations below contribute to the price. Understanding the relationship between the price and the element will lead to the best decision.
No. 2: The Furnace Brands. Mixing brands may reduce operating efficiency. Different brands often have unique features that may not be compatible or decrease the efficiency of other compressor brands.
No. 3: Different Types of Compressors. For example, some are one-stage, and others may be variable-stage. The various models claim separate energy savings in addition to cost differences.
No. 4: Compressor Unit Size. You want to be sure the replacement unit is not oversized or undersized.
No. 5: The Time of the Year. Suppose the unit fails and the end of the busy season is near. In that case, it may pay to wait until fall when the contractors are not as active for the possibility of better pricing.
No. 6: Warranties Are Not Equal. Understanding the warranty on a repair or replacement may be a significant factor in making the determination.
No. 7: The Contractor. An HVAC contractor knows more about compressors than the consumer. Some contractors will use that knowledge to their benefit at your expense. This chasm is called information asymmetry and is common in many service businesses. Real estate agents, physicians, dentists, car repair mechanics are other examples of service businesses that have the potential to abuse their knowledge.
Information asymmetry is the main reason to take the time to obtain multiple estimates about your compressor. Let the technicians diagnose the problem and offer their solutions independently. More often than not, the diagnoses and the costs will vary, sometime significantly, between the three estimates. Just because a contractor may have a higher price does not mean they are taking advantage of you. They may be offering a better product, believe their service is worth more, or offers a better solution.
You will decide based on comparing these variables. It will be easiest to pick what you believe to be the logical solution and ask the other contractors to adjust their estimates to match the solution you like. This little trick will bring the contractors to an apples-to-apples solution with different pricing. Now it will likely be easier to pick the contractor.
The Payback Period
Calculate what a new component will cost. Divide the cost by the savings in energy, utility, or any expenditure attributable to the replaced part. The result is the time it takes to pay for the update. Five years is considered an efficient payback period, but each component and situation are unique.
Richard Montgomery is the author of "House Money - An Insider's Secrets to Saving Thousands When You Buy or Sell a Home." He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com
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