Minesweeper, or: Variations in 50 Real Heat Pump Installations
This backs up contractors' claims that "every house is different", more or less
Playing Minesweeper
At some point in our January research phase I’m going to publish a more detailed memo
This memo is an account about how pricing in this industry is basically playing a big game of minesweeper that requires broad knowledge across multiple construction trades, and how, because most people don’t have that expertise, heat pump pricing inherently bakes in a safety margin in case something unexpected happens.
Because every contractor can approach that risk calculation differently, while having very different business objectives (hiring more next year vs. staying steady, amount in reserves, debt financing vs. bootstrapping), you naturally end up with a wide, wide range of prices for ostensibly the same installation.
But it’s tough to make that case without hard data re: how many different edge cases you can truly run into, or how often they come up. Fortunately, we have the hard data from 50 installations this fall.
50% of Installations Have an Edge Case (a “Mine”)
Approximate breakdown:
7/50 electrical (tight load calc, service upgrade, difficult wire run, tandem breakers)
5/50 plumbing (HPWH installation, drainage location required, boiler removal)
9/50 ductwork (zoned dampers, tight attic, extra returns, ductwork replacement)
7/50 refrigerant lines & ceiling cassettes (difficult line run, finished space, etc.)
A few of them repeat, but I removed the duplicates and we arrive at 25 distinct complexity adders beyond the baseline heat pump installation.
2x condenser requested (typically we’d only use 1)
3rd floor sloped ceiling difficult line run
Ceiling cassette
Ceiling cassette + hallway difficult line run + sloped ceiling + ERV
3x ducted system large install
Basement height limitation for vertical ducted air handler
Entryway space heaters requested
Closet air handler spacing constraints
Custom zoned dampers required
Ducted upstairs in relatively tight attic
Return ductwork poor condition, needs to be replaced
Extra returns in bedrooms
Line run soffit jump, floor units, difficult basement line run so 2x condensers w/yard spacing constraints
Refrigerant lines in finished basement ceiling, custom supply plenum required
Finished basement concrete wall w/small opening for line run
HPWH add-on + urgency bump due to no heat
HPWH add-on in closet (space limitation?) + boiler removal
Basement ceiling plaster removal + boiler removal + service upgrade + HPWH
Plumbing faucet move
Electrical run complication (need adjacent condo space access)
Electrical service upgrade necessary
Service upgrade not required but requested
Service upgrade required
Service upgrade required + boiler removal
Underground electrical service upgrade necessary
The thing that makes pricing really hard is that the chances of hitting any one “mine” is small, but the chances that a house will have at least one of these complications is a 50% coin flip. This means that every contractor needs to do a walkthrough to check like, 10 different things, every time, to be exactly sure about how they want to price a job.
And that’s why most contractors won’t give you a price without a walkthrough.
Well, there’s also another reason for that..
Who is good at playing minesweeper?
Suppose you are pricing out a heat pump installation in Boston. What domain expertise would you need to have in order to predict how difficult/long it would take to complete a job, and therefore the price?
Electrical (necessary) - you need to know if a service upgrade is necessary, and if it’s reasonable to get from panel to condenser
Plumbing - if you intend to install heat pump water heaters, you need to know how drainage works & the models on the market. If you’re removing boilers as well, you need to be able to coordinate draining a boiler w/the plumbers
Ductwork - necessary from a design standpoint, with zoning dampers & plenum fabrication as more advanced variations
Construction/Architecture - you need to know how a house is laid out or else you won’t know how to run refrigerant lines, or if there’s enough space to install a ceiling cassette, or ductwork
Heat Pumps & Building Science - so you know what equipment to actually use, and the right scenarios to use them
There are very few people with all of that knowledge. And those people are typically HVAC crew leads, or former techs/owners who are busy doing other things. So to ensure everyone can get a quote, the first (qualifying) walkthrough is typically done by a more junior salesperson/comfort advisor/design engineer or whatever you want to call it, who has domain expertise in some but not all of these categories.
What do you do if you have to give people a price, but aren’t 100% sure that there aren’t unknowns that may add to the cost?
You tack on a few thousand extra dollars, just in case there’s something you missed.
Why don’t people just specialize in certain categories?
Well, Kit. This is what specialization is for. Why don’t people just like, offer to exclusively do ducted installations? Or only HPWH installations? Or only work with triple deckers or cape houses?
They do. This is called subcontracting.
The plumber who does HPWH installations probably isn’t installing your heat pump, and they’re definitely not upgrading your electrical panel. This is what we do - if we need a service upgrade, there’s an electrical crew that we typically work with. We have multiple plumbers who can install a HPWH.
But unless you, the homeowner, want to talk to and coordinate with many many subcontractors, you typically work with a single point of contact. And that point of contact needs to have enough expertise to be able to veto an impossible plumbing or electrical job, or to price it out for you. Their coordination is a part of the overhead they charge you.
Other times, you’ll also have contractors specialize only in ductless mini-splits, or only with ductwork. This exists as well, but remember: most legacy contractors also service furnaces, oil boilers, etc. Installing heat pumps itself is a specialization already.
Local Market Constraints
Now, if you could ship & deliver an installation like you could for a physical good, then you could easily choose the best contractor-who-installs-zoned-dampers-specifically-for-LG-heat-pumps whose purpose in life is to just do that perfectly all day, everyday. And the competitive market is anywhere you can ship an item from, which given modern logistics network is almost everywhere in the country/world.
But you can’t. Because people have to physically drive to price out your installation.
Therefore, you are effectively looking for the best in your respective region. And conversely, a contractor needs to be a generalist at first, or else they would need to drive across Boston (which is super time consuming) to get enough work.
On top of that, contractors like to stay in a particular region because they know the town inspectors, and given the fact that you oftentimes need to work with 10+ different towns in a given region, there’s a big incentive to stay local where you can.
So in reality, for the building trades, you’re probably working with a contractor who is
Trying to price out your job given limited information, and limited knowledge. They are probably adding a contingency margin in case something goes wrong, on all installations, even the easy ones.
So established & experienced they can price things out exactly, but they’re probably charging a ton of money for it since there aren’t a lot of those people.
And that’s one way the trades shortage impacts prices!
Conclusion
You are paying for insurance. You may not know it, but you are.
The sheer number of variations (I didn’t even get into thermostats) means that there is substantial risk of things going wrong with any installation. And it’s not like we’re in Irvine here, where all the houses basically look the same:
The price of that is baked into the overhead/admin portion of an installation. That is one reason why overhead can be high in this industry, in addition to all the usual costs of doing business (insurance, equipment, reserves, etc).
What a hassle!