What are your reasons for considering such a replacement?

1. Reduce cost of operation
2. Reduce energy usage (green- not as concerned about payback)
3. Need for continuous hot water
4. Just need working water heater to pass inspection

Payback on a tankless is around 5 years in the best of situations. Don't do it if you are going to sell in a year.

Note: there is no such thing as a HiEf conventional NG water heater. They all have an EF of 62 - 65

I would be really tempted not to do anything and let it come up in the inspection of the house. If it does, give them a credit of $600 and let them decide what to do.

As Jake said the payback on the tankless water heater is 5 years under the best of circumstances. Doesn't make sense to invest in one if you're going to be selling in a period of time less than that because you'll never recoup the investment. There may be some argument that modern mechanicals may make the house easier to sell, especially in a down market, but that's a different equation.

Off on a tangent and perhaps rant from Jake's comment about offering a buyers credit for the replacement water heater. Now assuming the water heater functioned properly and you disclosed it's age, how have we gotten to the point where a buyer of a "used" home thinks they are entitled to new appliances? Could you imagine walking into a used car dealership and demanding a new engine (or the equivalent in cash) for a 2002 car. They'd laugh at you. How is buying a "used" home different? If you want new appliances, buy a new home.

my experience is that a tankless water heater is only slightly less expensive to operate. It was about $3000 to install, and my monthly gas bill was only a few dollars cheaper per month.

But tankless water heaters do have a reputation of being a green product, so buyers might find that attractive.

I see a tankless water heater as a luxury item. I can run the hot water all day long and never run out.

~Jay

I was given a quote of $1500 dollars to remove an old water tank, fix the mistakes left by the previous owner and replace with a new water tank. The quote to install tankless...$5500.

It was a no brainer.

Must have been a lot of mistakes for $1500. Just a swap for a basic water heater should be $600-$800.

Hey person paying $1,500 for a new water heater, can I be your handyman?

"Hey person paying $1,500 for a new water heater, can I be your handyman?"

Ditto for a quote of $5,500 for a tankless!

My mid-size Rheem tankless (150k btu/h), including vent kit and service valves was ~$1,000. It was a few hours work - but easier in some ways to a tank because it was small and light weight. Once people get used to installing them, the price of install will go down.

BTW I think there is up to a $1500 tax credit for tankless so it may be worth it if you can get a really good deal.

AFA the $1500 for the water heater, the old water heater had to be taken out, new earthquake straps and studs had to be put in, the overflow pipe to the release valve had to be re-done, so the installer had to crawl under the house, re route the piping, had to reconnect the backflow tank because it was connected to the cold line, had to go into the wall to fix the plumbing, repair the gas line, had to go into the attic and replace the flue pipe and install the new water heater. All in all the install took about 6 hours.

And yes I probably got stiffed on the price, I'm miffed that I didn't choose a specific water heater just one that has a 50 gal capacity, should've gone for an Energy Star.

We installed a tankless hot water heater a couple of years ago when our old tank died. It cost more ($2200 maybe with the new gas vent, larger gas line, etc.), but it also has a few advantages. Smaller footprint literally and figuratively, constant hot water as long you want to stand in the shower, and lower utility bill (though not by THAT much). We are empty nesters, so it doesn't get a big workout very often...holidays and such.

One disadvantage is the lack of experienced plumbers, even those listed on the company's website! The dealer that installed it went under with the building bust, and I had to pull up the product manual on my laptop and talk through it with the plumber who did my annual filter cleaning. (We have very hard water and I knew it needed cleaning, just didn't want to attempt to disassemble it myself....but I will now that WE learned how to do it.)

In this economy, I'll bet more people are opting for saving $$ than going green on this appliance, since the payback time is considerable.