You can ask for anything you want.

If your market is as hot as mine is, the seller may choose to not fix anything - in which case you have to decide whether it's worth losing the house over what to me seem like pretty minor issues.

Is it a big deal? Yeah, it's called a fire code violation. Combustible materials must be kept 1" minimum away from the pipe.

How much would it cost to fix? Can you afford to fix it? If so, I would do it lest I risk losing the house to the next bidder who is willing to take the property as is.

It shouldn’t be a dealbreaker. It’s likely that it can be enclosed behind a properly studded and sheetrocked chase, but definitely address this right away as it is a fire hazard! You can ask for cost adjustment, but others are right - it’s definitely a seller’s market, so weigh it against your need for the house. Considering this gross violation, I’d have someone give the house a more thorough inspection of electric, plumbing and HVAC, just to be sure it’s safe.

Yes, it needs to be addressed.

For expediency, I would ask for cash back at closing - rather than hold up closing.

So, $600 to box in the flue, for example.

Then I might use that money towards a hybrid electric water heater that doesn't need a flue.

@Jake The Wonderdog How much should I expect for a hybrid? Will that require cutting through my walls? Thanks!

A hybrid electric heater would be a similar size (slightly taller) than what is there. It would require a 30 amp / 240 electrical run back to the breaker panel.

It would not have a flue.

You would have to deal with removing the flue from the closet, closing the hole (ceiling and floor) and the hole in the roof - all of which would be a hassle... .but you wouldn't have a flue in your closet.

If you just want to fix what you have, it's not a big deal... they will cut the carpet back, frame it with 2x4 on edge and drywall it.

A hybrid electric heater is about $1500 for the heater itself - plus install, electrical, and removing the existing flue (so, it's not a cheap solution). There are, however, some large rebates/tax credits available ( $300-600).

Hybrid heaters work by removing the heat from the surrounding space (looks like you have a garage or basement currently). They are generally the least expensive to run of all heater types.

If cost is an issue, you might wait until you are ready to replace your existing water heater... but at least you would have a plan for how to remove the flue from your closet.

@Jake The Wonderdog such great info!!! Thank you. That really helps.