a CLOSER look home inspections

What the heck is with an old furnace anyway? Man – they built them to last for – FREAKING – ever in the 1970′s. I guess they figured that gas would always be cheap and that new technology would pass furnaces by. Well – not true. A furnace built in 1970 was about 60%-65% efficient versus today’s 95% efficient models.

Quick side note – what does the efficiency really mean? Well is realistic terms, think of it as a dollar bill. If you buy $1 of gas and have a 60% efficient furnace, then 60 cents is heating your home and 40 cents in going out of the flue! This is a rough approximation, but is generally pretty accurate. So a 95% efficient furnace means that you lose only 5% of your houses heat out of the flue.

OK, so does that mean that old furnaces are bad? You would not believe how many times I hear this question asked by my customers. The answer is no. An old furnace is not bad because it is old. In a home inspection certain things are inspected on a furnace, but if they are operable with no major problems – then they are not a problem from a home inspectors point of view (Read our procedures for inspecting a gas furnace here). However, one of the best things you can do to lower your monthly gas bill in the wintertime is to upgrade an older (even perfectly functional) furnace to a high efficiency model. The savings in monthly gas usage usually pay the furnace off in about 5 years. However, in Springfield, MO in 2009 you could pay off the unit in only 2 years! Here’s how…

Let’s say you want to replace your 60% efficient, functional furnace with a new 95% efficient furnace. At this time, I will not talk about ductwork or an air conditioner (which will both be the topics of different posts). Let’s say I hire a company to do the work for $2,500, which includes the furnace and the installation. It will take $2,500 out of my pocket now to get the furnace replaced – so you need to be aware of that up front. None of the rebates offered anywhere lower the initial cost. Now that I have the furnace in place, let’s get our first rebate. Go to the rebate section of the city utilities website and download this form, and fill out the customer section. Give the form to the contractor you hired to install the system and have them fill out the contractor section of the form. After submitting the mail-in rebate, you will be eligible for $350 back from city utilities for a 95% efficient furnace installation (different efficiencies have different rebate amounts). The rebate comes within 3-5 weeks after the form is submitted.

Please note that the contractor must perform and submit a load analysis called a Manual J Load. Only use contractors qualified to perform this analysis. Additionally you will need to submit the invoice for the work showing the installation date and a GAMA certification (ask your contractor for this)

Well that’s $350 of the installation cost already paid for by city utilities (or your your percentage people – that’s 14%). Now let’s jump to tax day (Go Matt France) for another chunk of money. There is a Federal Tax Credit for Energy Efficiency in place to assist residential consumers with the cost of upgrading certain components of your home. Natural gas furnaces that are a minimum of 95% that are on this list qualify for the tax credit. The tax credit will allow you to reclaim 30% of your furnace (including installation) upgrade up to $1,500. So on April 15th, you will submit your receipts to your accountant and claim $450 as a tax credit (that’s 30% of $1,500). This is a true tax credit (not a deduction), so if you were going to get a $1,000 refund – now you would get a $1,450 refund.

At this point, I have recovered 44% of the initial installation expense without even running the furnace yet! Now I get to talk about therms and heating degree days – yippie! A therm is a normalized “amount” of fuel used to equate the expense of the fuel in terms of heating. This means I can calculate the cost of heating a home on any given day with wood, oil, propane or natural gas and see which is the cheapest. Anyway – city utilities calculates an average residential annual gas usage in therms – so we’re stuck with using it. OK, heating degree days is a representation of the number of hours per year the outside temperature is below 65 degreed Fahrenheit (divided by 24). This is the best way to determine the therms of heating needed to maintain a livable house.

Definitions out of the way – city utilities has recorded here that the average house in the Springfield, MO area uses 780 therms of natural gas per year. The cost was listed as $1.13/therm making the average annual cost of gas $883. Now some houses have gas water heaters, fireplaces and ovens that use that natural gas as well as the furnace, so I have to subtract that from the bill to find out what is costs to run just the furnace. I decided to use the Department of Energy’s numbers which account for this fact. You can view the chart on this webpage, but it says that upgrading from a 60% furnace to a 95% furnace will save you $37.80 per month per $100 of fuel spent. That’s 37.80% savings per year, which calculates to an annual bill reduction of $333.72.

At that rate of reduction in gas usage and saving 44% in the first year from rebates, the 95% efficient furnace will completely pay for itself in 3 years and 3 months. After that, you save $333.72 every year – forever! My opinion is that if you are buying a house to live in for at least three years and hte furnace is an older model – seriously consider replacing it with a 95% efficient model.