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How to read a water heater bid from contractors

Heating and Cooling, Water Heater Updated: June 7, 2023

Know what to look for when choosing a new water heater and installer.

In this guide, we’ll cover how to read bids, understand the installation costs, compare fuel types, and consider operating costs when selecting a new water heater. These tips and general guidelines can help you make an informed decision and potentially save up to $700 on qualified high-efficiency water heaters with Energy Trust of Oregon incentives. For help choosing your water heater type, check out our related article on water heater purchase considerations.

Sample bid

Key components of a water heater bid


Inclusions are what the contractor is committing to complete for the quoted amount. Exclusions typically describe work related to the primary services that the contractor is not agreeing to perform. This may include removing or recycling existing equipment, upgrading the gas line or electrical system, etc. It’s important to ask your contractor if they believe you will need any of these services in order to complete the project. While contractors may clearly call out services or products that are not included, it is also safe to assume that when something is not mentioned at all, it probably means it is not included. It’s your responsibility to have the services you expect in writing before signing the bid. This includes expectations around site cleanup at the end of the day/project, permit costs, warranty coverage (labor vs. parts) and rebate/incentive support. If you see something called out on Contractor A’s bid, but not included with Contractor B, this is a good opportunity to ask why.

Comparing equipment across manufacturers

As you collect bids from multiple contractors, you will likely have to decide between different manufacturers. Each contractor likely sells multiple brands of equipment to their customers. Understanding the difference between each of the popular water-heating manufacturers can be difficult. Manufacturers and their associated dealers (contractors) are very good at selling their specific equipment (that’s their job!). Besides referring to third-party consumer report-style websites, you can look for other distinguishing factors:

  • Length of warranty: Look for warranty length as well as labor (the cost of having a contractor perform a repair) vs. parts (the cost of physical components being replaced). Some warranties will also limit coverage to specific components.
  • Price vs. value: Higher-efficiency water heaters can come at an additional up-front cost, but may save money in the long run. Hybrid (heat pump) water heaters, for example, can typically pay for themselves within 10 years based on the avoided costs of electricity over that time period. Whether you are installing a gas or electric water heater, be sure to ask your contractor for an estimated cost of operation for each water heater option in the bid to determine the full lifetime costs.
  • Optional features: Some water heaters have enhancements that can extend the life of the tank or offer additional conveniences. However, they typically come at a cost. Don’t hesitate to ask the contractor what those features will mean specifically for you and your home and decide if the value outweighs the cost.
  • Efficiency ratings: The energy efficiency of water heaters is measured by the Uniform Energy Factor (UEF) rating. The higher the number, the more efficient the unit is designed to operate.
  • Incentive and tax credit eligibility: Your bid may include the Energy Trust incentive amount and available tax credits for each unique system being proposed. If you do not see any mention of incentives and/or tax credits, double check with the contractor(s) before comparing total costs between each of the bids. Be sure to have any promised credits listed out in writing before signing the bid.

Comparing services

Remember, you are not just purchasing a piece of equipment, you are also hiring a company to perform the installation. Look out for services included and not included that can impact the overall performance of your water heater. Some key services include:

  • Water heater sizing calculation: Whether you are in the market for a tank or tankless, gas or electric water heater, choosing the proper size for your specific household is a very important part of the selection process. Contractors should have a clear understanding of how many people will be relying on hot water simultaneously. For gas tankless systems, contractors should also be checking the existing plumbing and gas lines to ensure they can support the size of the water heater. You can find additional information including a DIY sizing chart at
  • Seismic strapping: Seismic strapping of tank water heaters is not required by all code departments, but that doesn’t mean it isn’t a good idea. Look out for this service on your proposal and ask your contractor if you don’t see it.
  • For hybrid (heat pump) water heaters: Condensation is a common byproduct when a hybrid water heater is functioning. Ask your installer how they will be managing the condensation and ensure they have a suitable plan. You will want to avoid condensation draining on outside walking surfaces and freezing in the winter. Also ask how they’ll be mitigating the noise from the unit if it’s being installed near a frequently occupied space. Noise dampening accessories can be used when the unit is seismically strapped.

Initial install costs

Installation costs can vary significantly, both by contractor and across different conditions of the installation location. As referenced in the section above, be sure to thoroughly review the estimates provided by the contractors bidding your project and compare what is and is not in the description of services.

Operating costs

The costs associated with a new water heater are not limited to the initial installation costs. There are various factors that can influence the cost of operating your water heater once installed:

  • System performance rating(s): As mentioned above, the UEF rating of the water heater, in addition to the yellow EnergyGuide sticker on the unit, will be a strong indicator of the operating cost you can expect.
  • Routine maintenance: Be sure to follow the manufacturer and installer maintenance instructions, including how often the tank should be drained and if there are filters that need to be cleaned (specific to hybrid water heaters).
  • Cost of fuel: As the price of electricity and gas fluctuates, so will the cost of operating your water heater. You can find the overall amount of fuel used at your home as well as the cost/unit of fuel on your monthly statement to see if an unusually high bill is due to an increase in usage or rising fuel costs. A mysterious spike in fuel costs could also be the result of a mechanical issue with your unit.
  • Temperature setting: The ideal temperature setting of your water heater is typically around 120 degrees. The cooler the temperature setting, the less energy it will use.

Hybrid (heat pump) water heaters are electric tank water heaters that use heat pump technology as the primary water heating source. When needed, electric resistance elements are also available within the tank to assist in heating the water. This type of water heater has unique factors that can impact operation costs:

  • System installation: In order to fully realize the benefits of a hybrid water heater, there are a few key aspects of the installation that need to be taken into consideration. This includes:
    • Verifying there’s adequate air (volume) available in the location where the tank is installed. If the space does not meet the minimum volume required by the manufacturer, the installer will need to make modifications. This could include adding a grille to connect to an adjacent space or ducting to the outside.
    • Ensuring there is proper clearance around the unit, per manufacturer requirements.
    • Additional guidance from Energy Trust, including support for DIY installations can be found here.
  • System settings: Hybrid (heat pump) water heaters often have various modes of operation. The mode you choose for your hybrid water heater can have a big impact on efficiency and operating costs. It’s important to read the operations manual to ensure you understand what each mode means:
    • The tank will use the least amount of energy when it’s in “Heat Pump Only” mode. This means the water will only be heated by the heat pump and will not switch over to the less efficient electric resistance coils. Most brands have a mixed heating source mode, sometimes called the “Energy Saver” or “Efficiency” setting. This will toggle between the heat pump and the electric resistance coils based on demand.
    • There may also be a “High Demand Mode,” which utilizes both the heat pump and the electric-resistance coils in tandem. It may be appropriate to switch the unit to this mode when there’s a temporary increase in hot water demand, however this shouldn’t be necessary on a full-time basis.
    • The hybrid tank will also have an “Electric” mode, which completely bypasses the heat pump. This is intended to be used in the rare event that the heat pump is not functioning properly or if the hot water has been exhausted and there is an immediate need for more.
    • Vacation settings are ideal to use when you are away from your home for an extended period of time. The tank will maintain a temperature around 60–65 degrees to minimize energy consumption while also preventing the tank from freezing.

Contingency and unforeseen conditions

It is not uncommon for contractors to have language proactively protecting themselves from unexpected circumstances outside of the work included in the bid. It’s important to discuss with your contractor how they will communicate with you before either completing the extra work and tacking on additional costs to your invoice, or potentially dipping into a contingency fee.

A contingency fee is often a specified percentage of the overall project cost listed as a separate line item in the bid and reserved for these unforeseen circumstances. Example: If you hire a contractor to complete a job that is priced at $10,000, and they have a 10% contingency fee added to the bid, your maximum project cost is $11,000. If the contractor is able to complete the project without running into unforeseen circumstances, there will likely be contract language requiring the contractor to reduce the final project cost by that $1,000 amount.

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