Inspecting Tankless Water Heaters
Tankless water heaters are starting to become more and more popular with home owners around the country because of their desire to save money on their energy bills.  Tankless water heaters heat the water directly without the use of a storage tank so you do not have the standby energy losses you would have with a storage tank water heater. This article describes how a tankless water heater works, as well as some details you should be looking for as you inspect the water heater.  Keep in mind, however, that depending on the climate in which you live, you may see a tankless water heater installed either inside or outside of the home.
1. The hot water tap is turned on
2. Water enters the heater
3. The water flow sensor detects the entry of water into the unit, switching on the computer.
4. The computer ignites the burner
5. Water circulates through the heat exchanger
6. The heat exchanger heats the water
7. When the tap is shut off, the unit shuts down.
Things to look for when inspecting a tankless water heater

Vent pipe is Category III (Stainless Steel) unless particular models are rated by the manufacturer to have PVC vent pipe
It will be vented either vertically or horizontally (if the manual is readily available, take a look at it. Installers are required to either leave the entire manual mounted to the water heater or give the manual to the consumer)
PRV is typically required where a TPRV is typically not required unless required by