How Much Does a Water Heater Cost?

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Cost is one of those questions that everyone has on their mind when making a large purchase – and rightfully so! It tends to be a balance between budget, functionality and fitting your family’s needs. When your water heater breaks, you typically have to make a buying decision quickly because no one wants to go without hot water. We want to provide you with a better understanding of what goes into the various costs of a water heater and how you can make a quick and informed decision.

Average Cost for a Water Heater

The good news is you have many options when replacing your water heater; the bad news is, because of so many variables, it’s difficult to provide an accurate average cost. The cost breakdown below will help you narrow down your choices and will provide you a ballpark cost for a new water heater.

Cost Breakdown: Things That Influence Overall Cost

Size Matters

Finding the right size water heater is a good first step to determining the cost. Obviously the larger the water heater, the more it will cost. You’ll also want to think about how much it will cost you long-term for the energy costs of a larger water heater. This is why you’ll want to size your water heater based on your families needs.

You’ll want to estimate your home’s peak demand, so that you get a large enough tank to meet the demands of your family. This is the number of gallons of hot water the heater can supply in a single hour. You’ll look to the water heater’s First Hour Rating (FHR), which is the number you’ll use to determine if a particular storage tank is the correct size.

To Find Your FHR:

A simple equation is: number of people in your home x 12 gallons = FHR. Learn more about determining water heater sizes.

Operating Efficiency & Energy Factors

On all water heaters there is an EnergyGuide, which provides a quick way to compare models (this isn’t as valuable when comparing tank to tankless or different fuel types). There are two primary numbers you’ll need to understand: operating efficiency & the energy factor.

Operating efficiency (also called thermal efficiency) is the percentage of energy that a water heater turns directly into hot water. Energy loss during operation lowers this percentage (i.e. when the burner or heating element is on). The energy factor is more important and provides you with the water heater’s average efficiency over a 24-hour period. This includes all types of energy loss.

It’s important to note that most tank-style water heaters don’t have a lot of variation on their energy efficiency. While each manufacturer has its own efficiency rating, most hover around 80% efficiency due technology and design limitations. There are condensing water heaters that are above 85%, but you’ll pay a lot more for something like this. It might actually make more sense to go with a tankless water heater for the cost and if energy efficiency is very important to you, tankless heaters have more energy efficiency options, but are more expensive to install.

Time to Install/Labor Costs

A water heater will take anywhere from 4-6 hours to install, depending on the specific requirements and configuration for your home. Things like code upgrades play the biggest role in how much time it takes to install a new water heater. Water heater codes change over the years and since you typically replace your water heater every 10-15 years, there’s a good chance there have been some code upgrades in the last few years.

If you’re thinking about installing the water heater yourself to save some money, you may want to reconsider after you’ve been able to evaluate all of the risks. Our article about “Why You Should Hire a Professional to Install Your Water Heater,” helps detail the risks.

System Upgrades

There are generally two different types of upgrades that might be required to install a new water heater – gas upgrade and code upgrades. It might be necessary to upgrade the gas line to the unit and a professional should evaluate this prior to installation.

Because new water heaters are not installed frequently, this means that even if your water heater had been up to code 10 years ago, chances are those regulations have changed. Talk to your professional about all your options to gain a better understanding of the installation requirements for your home.

Fuel Type

Most water heaters in New Mexico use gas as their fuel source. With that said, the cost of the water heater type you get depends on the fuel source. Gas is cheaper in New Mexico, which is why most people use this type of water heater. Electric water heaters are very expensive to have as your primary heating source.

Other Options – Pros & Cons of Tank vs. Tankless Water Heater



  • Lowest up-front costs
  • Easiest replacement & installation


  • Standby heat loss (if hot water is used only for morning showers and washing dishes at night, a lot of energy is wasted keeping water hot while you’re at work or sleeping).
  • Can run out of hot water
  • Tanks are large and bulky
  • Less precision with temperature control



  • Endless hot water
  • Runs only when your use it (offering potential energy savings)
  • Accurate temperature control
  • Smaller unit – space saving


  • Higher installation costs
  • Electricity outlet needed for most models
  • Complicated installation
  • Hard water can cause scaling (mineral build-up) and can damage the heat exchanger

If you’re considering buying a tankless water heater, you can download our Tankless Water Heater buying guide for free!