That is actually quite a common question. As far as recommending a second water heater hooked in tandem with the first or a larger water heater, you were recommending the obvious. As far as writing in your report that the water heater was in need of repair, well, that would have been wrong if it were working well and in good repair. As far as a 3 bed 2 bath home (or larger) with a 40 gallon water heater, well that is a bit small.

I think you did the right thing. Three children and one being a teenage girl that takes and hour shower (I had three girls) there would only be one catching a shower with 40 gallons.

Don't worry about the agents. (I know, you are one) That my be a new topic for discussion.

Ted