Ultimately, you have to decide whether you want to spend $700 on a new compressor or $3000-$4000 on a new condenser and coil. It's a tough decision which may depend on how long you intend to own the house.

If your current unit uses R22 Freon, replacing the compressor is not like a new unit.

R22 Freon is going away no production after Dec 31, 2020 and what is produced up to this point is highly limited.

So if your R22 unit springs a leak, you may be at some point forced to replace it due to high refrigerant cost. (certainly you could sell the home as a way to escape, but the next home you buy may have similar problems or worse. It's the way karma works... you don't truly get away with anything.)

I recently bought the house so probably makes sense to go with a new unit. The HVAC company suggested that should be able to get $1,000 credit from AHS. Thinking that could be inflated i.e. the companies quote could be inflated making the end price look like a $1,000 discount. I'll have to get a couple of bids and also find out if I can get a settlement from AHS if there is a better price.

The company is probably taking the payment for the initial call and the probable cash payout and adding the two together in order to try to sell you the job. The question really is the skill level of the employees doing the work.

Because common sense tells me that you spend the money to do this the home warranty will be cancelled right?

Installation is the most important part to this. Evaluate each company you get a quote from. The most common way to cut cost in this industry is to hire unskilled labor.

Every company out there buys equipment from more or less the same place.

So just comparing quotes by cost alone, rarely turns up anything good for you.

So my experience with compressor replacement -- besides what has already been said -- is that it requires skills that field techs often don't have, or don't have the time to do even if they have the skills.

Compressor burnouts usually leave a system contaminated and cleanup is a bear.

If you intend to get longer, reliable service look to a new system.