A range of capacities is available for both gas and electric models. Some units are designed for homes with multiple bathrooms, while others are suitable for smaller homes with a single shower.

Green builders also can select the most efficient models based on national recognitions and standards. Energy Star recently established a residential water heating program to recognize gas, whole-home tankless water heaters with an energy factor (EF) of 0.82 or better, gas condensing units with an EF of 0.80, and electric heat pump water heaters with an EF of 2.0. So far, however, Energy Star has not recognized electric tankless water heaters, which typically have an EF of 0.98 to 0.99 compared to 0.91 to 0.95 for an electric tank unit, because it is still a small market and the energy savings are too low, according to Energy Star.

Builders also can earn two points toward LEED certification if the gas unit has an EF of at least 0.80 or an electric tankless unit has an EF of 0.99. The National Green Building Standard awards points for whole-house tankless units that are either direct-vented or power-vented to improve indoor air quality and minimize contamination from combustion byproducts.

All of that efficiency, however, comes at a price. Banker estimates that most tankless water heaters cost two to two-and-a-half times more than a traditional tank model. Federal and local tax incentives and rebates, along with incentives available from many utilities, can help offset the sticker shock.

While the return on investment depends heavily on water usage and energy prices, homeowners can expect to recoup their initial investment in about four to six years. In addition, the life span of a tankless water heater is two to three times longer than a traditional water heater.

Infrastructure & Installation

While both gas and electric tankless water heaters are generally considered more energy efficient than tank models, builders should note that tankless units actually consume more energy than tank water heaters, but for shorter periods of time. To accommodate these significant surges of energy, gas units must be connected to a large gas line and electric models require extra breakers to support the heating modules in the system.