Tankless heaters range in price from $200 for a small under-sink unit to $1,000 for a gas-fired unit that delivers five gallons per minute. Those numbers do not include installation, which can add $150 to $300 to the price. Typically, the more hot water a unit produces, the higher the cost. Electric tankless heaters typically cost more to operate than gas units.

There are some drawbacks to demand water heating, and you and your contractor need to be aware of them before you decide that your project must go tankless. Unless your demand system has a feature called modulating temperature control, it may not heat water to a constant temperature at different flow rates. That means that water temperatures can fluctuate uncomfortably—particularly if the pressure varies wildly in your water system.

Electric tankless units will draw more instantaneous power than tank-type water heaters. If electric rates include a demand charge, operation may be expensive. Electric units also require a relatively high power draw, because water must be heated quickly to the desired temperature. Make sure your wiring is up to the demand.

Tankless gas water heaters require a direct vent or conventional flue. If a gas-powered unit has a pilot light, it can waste a lot of energy, and, depending on design and the cost of gas, pilot lights can cost $12 to $20 per year to operate. Many of the newer gas-fired units take that into consideration by not having pilot lights.

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