I defer to the professional plumbers for the final word but in my research preparing to R&R my WH I read the code and the Home Inspector is on point and correct.

My WH has the T&P on top and all the new generation FVIV WHers I've seen have the T&P on the side and lower than the drain line going into the wall. The code is specific that the line from the T&P is a gravity line and must only go down. Any water sitting in the line at the valve can rust the valve and render it inoperable.

I will either redo the T&P drain line or order an FVIV WHer that has the T&P on top.

Whether tank WH or tankless WH the T&P valve and line must meet code... it is a safety concern.

After getting more information - the Takagi Tankless only has a pressure relief valve - that apparently doesn't need to be exclusively a gravity line - can anyone confirm that.

Certainly a Tank system would need it.

Regardless of the logic that a tankless T&P may not need to be gravity drained the prevailing policy of the local plumbing inspectors is what matters and will get you a red or green tag. If the tankless doesn't need to be gravity drained it may take many years to filter into the codes.

I think I read somewhere that Watts, the manufacturer of the majority of T&P valves, that in order for the T&P valve to meet spec has to be gravity drained and they don't mention tank or tankless as a distinction.

Look at the last paragraph on page 2 of the following link... http://media.wattswater.com/ES-10L-100XL.pdf

You can call the inspectors and ask, but I'd want something in writing that the current install is OK.

Was this tankless install permitted and inspected?

Since this concern is documented in the home inspection and you are bound by disclosure to offer that info you are right to want to get the answer and do what is necessary.

Let us know what you find out.

As a further thought... that your tankless has ONLY a pressure release valve is confusing you.

The pressure being relieved will be in the water channel in the heater so the valve will release at least SOME water along with pressure if it activates and that water will stand against the valve because it can not drain over the high point in the drain line. That water standing against the valve is what can render it inoperable and the reason the drain line must go DOWN from the valve.