One question that is asked a lot here is why is the cost of geo systems so high.



The following explanation was recently posted:

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Hi.

I'm new to the forums.

I've installed some EarthLinked DX systems. I can't talk for water source systems, other than they cost more.

The conversation here is out of line. You're basically calling me (an HVAC contractor) a lying cheat.

I'm going to list my approximate costs and what I charge on a bid for a 4 ton system--just for forced air heating and cooling.

Cost of materials on a typical 4 ton system includes:
4 ton heat pump: $3,690
4 ton vertical ground loop: $2,255
125' of line set, approx. $1,100-$1,300
R-22 refrigerant, $200
Nitrogen, $45
heat pump thermostat, $200
duct, including the grilles, registers, duct seal, (always varies greatly), let's say it's a new home, 2000 s.f. per level, basement and main (NOT A RETROFIT COST): $2,400
condensate drain: $50-$100, depending if a pump is needed
acetylene and brazing rod: $50
freight: $450

This totals about $11,300. Next, I'll have to pay sales tax on all of this. That's an additional $710. Now my total material cost is $12,010.

Next, I have labor to install the above. It'll cost me about $45 per hour to pay my guys. This includes worker's comp, non-productive time, etc. I'll have to pay about $4,800 in labor. I'll also have to pay about 30% labor taxes on that. That adds another $1,440. So my total labor costs hopefully don't exceed $6,240. This is not my profit, this is my labor COST. In other areas, I've heard of the hourly cost being upwards of $85 per hour. (because of labor unions and dues, I'm told)

Overhead is next. I know this one, along with labor, varies greatly across the US. For my small company, and small amount of sales, I have to cover at least $1,800 of overhead for this job. This could easily need to be $3,500+ or so.

Now there's mileage. It costs me (just a pure cost) about $1.00 per mile of travel with a service/install truck. This is gas, tires, service and insurance. Let's say the mileage is only $100.

So, my costs (still haven't added drilling or excavation) total about $20,150.

Now, how much money do I need to survive? Are you okay with me getting $50,000 per year? It'll take about 1 week for us to get this system installed. Let's say (I wish) that I can sell 1 system per week. That would be phenomenal, but improbable. So, for 50 weeks/year, at $50,000 per year, that's $1,000 per system. Let me tell you, if I'm only making $1,000 per system, I'm going to go bankrupt. Why? because eventually--inevitably--I'll have to return to a system to fix it on warranty. Whether it's my fault or the manufacturer's, it costs me time, fuel, and materials to go back. Of course, we all want the system to never have problems, but...

Typically, I need to make at least $3,500 per system. So now, without drilling and excavation, the total is $23,650. When I can get a driller, they're typically $10 per foot in my area. So, for a 4 ton, that's $4,000 drilling. Now the price is up to $27,650. I'll need a backhoe for a day, another $350. So, I'm an even $28,000. This isn't always the case, but it's a good fair guess as to how much I'd charge. If an installer needs to make $5,000 per system, good for them. It's not a rip-off. You're getting exactly what supply/demand dictates. A fair price for a fair product.

Remember, this is for a NEW home. NOT a retrofit. For a house without duct, that needs it retrofitted, it'll cost me double the labor and overhead. It'll cost about 50% more on duct materials, and my liability is higher, too. It also takes longer, so I can't do as many systems.

Before anyone rags on me for wanting to make a profit, let me say this. I'm installing the most comfortable, reliable, efficient, safe, green heating and cooling system available. Do you get a Mercedes car for the price of a Yugo? Is a Yugo just as comfortable and safe as a Mercedes? No. You pay extra for a better product.

I'm installing a system in your house that will actually pay for itself in savings. How about your kitchen cabinets? The carpet? the tile? window and door trims? No. Geothermal is the best bang for the buck. Do I wish my costs were lower? Absolutely. When they become lower, I can lower my price. But until then, I have to maintain the price as it is, or I'll go bankrupt. Why do you all want us HVAC guys to go bankrupt?

Forgive my stupidity, whats the difference between a 4 ton Heat Pump and 4 ton Vertical Ground loop? At first that thought he was referring to the drilling required to for the piping, but this is listed under materials, not labor required.  

The ground loop he's referring to here is the copper piping for the loop itself.

I thought that what the

125' of line set, approx. $1,100-$1,300

Was. What is the 125 feet of line set for then?

You have lines to run from your loop field to the heat pump. Much like purchasing a conventional airconditioner, you get the copper loops (coils) on both ends but the lines in between are sold seperately. Unlike the conventional air conditioner these lines may be 11/8 instead of 1/2 or 3/4 making them considerably more expensive. This is why we seldom get into specific cost breakdown as one explanation often requires 3 more.
Not directed to you T.G. but the broader question of the thread:
I had a consumer recently asking me for a picture of a hot water generator. I looked anywhere I could think of but was unable to find a cut away of the heat exchanger with geo specific application. I finally drew a picture only to discover he was referring to the process piping he'd seen on the Climatemaster web-site. In the end it was akin to asking what a watt looks like ( ans: who cares!). The same customer asked if I could put together a vertical 4 ton system together for him for less than 20K. When I did he complained that it was a single stage unit that didn't include a hot water generator or tank or R-410........ 3 trips 60 miles 1 way ($100 in gas), 9 or 10 hours driving and on site, more hours on lline.... do you suppose his attention to detail inspired me to sharpen my pencil? Or even spend that kind of time with the next "attention to detail" consumer?
Consumers who insist on much greater detail than the average buyer, cause us to charge more or turn tail and run, because they will not only micro manage our pricing, but the installation as well and waste much of our time. Demanding questions demand time- our time is what we sell.
Joe

While I sympathize with the desire not to be nit-picked and second-guessed, I need to point out that I micro-managed my install, and as a result it is sized right, zoned right, runs quietly, makes 80% of my domestic hotwater and cools 3k sq ft in Florida all for <$100 per month in summer. Oh and I also debugged their damper wiring for them, advised on the correct way and location to set ICM fan speeds and worked with them on the waterside. My intial direction on that was that they give me 24 Vac when the compressor is running and I'll ensure the water flows, but even that gave them fits for awhile.

The total absence of HVAC contractors in the Jax FL area willing and able to deal with geo, metal duct, two stage equipment, zoning, Manuals J, D, T and S meant that my builder and I paid a premium for a crew to run duct and set the unit in place. They did a good job with the ductwork, I'll give them that. They became a Waterfurnace dealer to acquire the unit I wanted (I even had to correct the model number before they ordered it to get the return on the correct side), sold one Waterfurnace, and now no longer return the distributor's calls.

The upshot of all this is that I, an electrical engineer way way out of field in HVAC, am partnering with my builder on his future houses so that he can avoid the screwups that have hosed him on past houses owing to the prevalence of hackery in this field. To that end I sat the state test for HVAC and this fall will ditch out on my primary employer a couple mornings a week to patch holes in my experience. The head of the HVAC program at the local community college doesn't get too many students with a BS degree and professional engineer's license and a deep understanding of psychrometrics, but who have zero skill in brazing and minimal skill in properly charging a split system...he got one today...it was an interesting conversation, to say the least.

If you are in the geo biz you are marketing systems whose upfront cost is often double or greater than that of typical air-sourced systems. Customers willing to pony up that extra chunk of change either are or will demand to be well informed so will need extra guidance as to the value they are to receive.

All that said, if you get one who initially exhibits interest in one of these high end systems but then attempts to beat you up over the price of 100' of copper or a desuperheater option, then run away as fast as you can...they'll never be happy, so get quit of them early.

Engineer,

Welcome to the geo business. May all of your jobs go smooth and may all of your customers be happy.

Remember that in the land of the blind, a one eyed man can be king.

We all will be anxious to hear how your first job goes.

Engineer,
As you said "way out of your field in HVAC." I have sought your input on the boiler thread, but you disregard my comments on local applications and experience. Design engineers appriciate the opions and experience of people who have served on the ground 20 years before they arrived. I respect your input even though I know you are new to my field. please do not ignore mine simply because the experienced contractors in your area did not care to work with you.

It has been my experience, when working with really good contractors, regardless of field, over the past 25 years, who have the ability to efficiently satisfy the curiosity and detail insisted by some customers, those well satisfied knowledgeable customers end up turning around and sending more future business to the contractor than could be imagined.

In other words, knowledge is power, I believe.  It's the exceptional contractor who has the skills to get the job done and simultaneously efficiently educate the consumer.  The amount of long term future business these contractors pick up from the well educated consumer is often immeasurable.

I believe what contractors sell is satisfaction.  And the truly exceptional contractors do it while being able to simultaneously manage time (effort).

Best regards,

Bill

  
As a contractor for 30+ years,   I would agree with your assessment.

Although I'm afar here in the Dallas area, please don't hesitate to holler if there's anything I can ever do to be helpful.

Best regards,

Bill

Actually I said "way WAY out of field..." wasn't a typo.

Didn't mean to come across as ignoring you...merely offering a different take on demanding customers. You've made some excellent posts delving into heating-dominated systems, and that I definitely don't need to mess up my mom's boiler...

Regarding my locale it isn't a matter of experienced contractors unwilling - none here do resi geo. I trolled the home show 2 years running and called every one I'd heard an ounce of good about, even resorted to the yellow pages. A tech question I posted at WF's site lead to an hour teleconf with a zone manager who essentially wanted me to become a dealer. My qualifications then consisted of an EPA cert so I could by a jug of R-22 and having let the factory installed smoke out of a few parts on a couple rental properties systems.

Builder / partner has been bringing a well guy in from 300 miles away and getting yet another to run ducts and set unit. A 2 contractor solution has often meant each blames the other, and the 300 mile guy has to charge $800 for an hour's service flushing a loop. To get what I wanted here in Jax it became clear I'd have to do much of it myself. It isn't a matter of competing with others, I'm being sucked into a vacuum.

Here (and at HVAC-Talk) I find out what I know and what I don't. Sometimes nothing is more illuminating than a fast reply setting me straight on something, even if it stings a bit to hear it.

And we who value the time spent, will (or should) charge sufficiently to cover ALL of the time spent. This is part of overhead.

If a customer wants more detail, and expects more time, I should charge more. Or they can trust my expert opinion/experience/training, and pay the regular quoted price. After balking at me about the price, good business practice dictates that I should raise the price. It means I'll have to spend more of my time with this customer, and can't use that time elsewhere. It does take time to make sure things are done correctly. Because of the possibility of having customers want extra time, my estimates would already include extra overhead to cover that time. Hopefully I'm right in guessing how much time will need to be spent, otherwise I'll be losing money--and there's absolutely no sense in losing money to stay in business.

What does a Watt look like anyway? :)

Engineer and all,
Sorry a little cranky the evening of my last entry. What I wished to express, and did a poor job of, is two fold.
1) As far as local experience; not so much in Florida, but in Mid-Michigan, the manual J average low temp could be as much as 25 degrees high. Oversizing systems is commonplace. The experienced contractors can tell you that two winters ago we were subzero for a week and 16 years ago we were -20 for a week (a 65 degree delta T not very satisfactory there).
When customer satisfaction is your full-time job, it's easy to mix the "no one ever complained it was to warm in their house in January" philosophy with proper design. A little extra resistance coil is cheap many return visits are not.
2) I don't know how it is in the southern states, but in the last year or two we've had a shift in clientelle. We used to recieve inquiries from people who had already done some homework on geo, and made the decision over a year or so. It was quite easy to answer questions over that time frame. Now we are recieving calls or internet inquiries (which incidentally cost me $15-$75 each) from folks that saw geo at the garden show and have no prior knowledge. Many are flabbergasted by the prices, Many try to shop it like a $3,000 furnace. Many seem to decide in a few weeks. That's a lot of info to pack into a short time. While I'd like to answer all of their questions- I can't. Simply not enough time in the day. So yes I do pre-qualify customers in my mind and some will not get much of my time, specifically those with no respect for it. All however are entitled to a phone call.
I may hire a comissioned salesperson to help with this additional stream of customers, but it would add hundreds to a price some consider to high to begin with.
Again sorry for the tersness of my response the other day and TGrom....... I think a watt looks like a really small kilowatt.
Joe

I imagine you are besieged with inquiries up there with everyone running scared over $4 propane and $5 oil. I'm sure I'd develop some kind of mental pre-screen checklist to rapidly separate players from posers.

I surfed up a -5 F winter design temp for Lansing, but I personally endured -24 one winter in Waukegan, IL - similar latitude and weather, I'd guess. After enduring that I moved to FL the next year. I can see where is one comes in from -20 outside one doesn't want to be in a 50-55 degree house...

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. or dit in morse code stands for "E". Only thing I can make out in the last few posts!!!