Water heater venting relocation issue

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When all else fails, look at two places: the National Gas Code and the manufacturer's installation instructions. The latter always gives you the "approved" directions, which, by the way, need to be followed for UL compliance, warranty compliance, and, most importantly, safety. I agree with all those who advised installing the correct size tank and hope to hear more from you and not God forbid, have to read about you.
 
Yeah, I'm not buying that connection. If that were in a home I'm inspecting, I'd flag that for further review. Doesn't look right and violates common sense.

Since when does an a/c unit go out on an overcast Tuesday afternoon when it's 72 outside? Never. They fail on a Sunday when it's 100 degrees out or around a holiday. Ditto for furnaces. They don't fail on a Thursday in April when it's 60 outside, it's in the freezing cold on a weekend or holiday. Murphy sucks.

Find your plumbing supply houses. Forget the big box store if what you need isn't readily available there.

All that being said...if the metal vent pipe enters the masonry flue, couldn't that have been raised some distance to get the proper slope for both items being vented? Hammer and chisel and cement is cheaper than anything else.

Not to add more trouble to this mess, but aren't there some very specific rules about joint venting of gas furnaces and water heaters? I would flag that for review on a home inspection just for the peace of mind of a new home buyer to ensure it was done according to manufacturer's directions and local codes if any.

BTW home inspectors don't often flag anything as "wrong"; it is most often "for further review"; so I'd flag the down vent of the water heater for further review and the fact that it's sharing another vent. Let a professional familiar with local code figure it out. The only WRONG water heater I flagged (and the seller got someone out to fix it immediately) was the gas venting completely disconnected. The nature of that is "don't go in the house until repaired" kind of thing that the RE agents were all over like white on rice.
 
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