TOPIC: Wire size for Hot water heater

"All the SOPs I have seen require the HI to report any defects observed;"

Significant defects.

Lets go back to the OP: "apparently worked okay since 1995 when the house was built. Should this be called out?"

Has not been a problem ( I assume) .

So you get free electrical evaluations where you are?
Not so here.

My opinion (if you care) is that if you are going to discuss something that is significantly deficient, you need to have something to support what you are reporting. If you don't know that you have THNN wire on a resistances (water heater) load, how can you call it?

An electrician shows up and provides information that everything is okay.  So you say , "well great, now we know it's okay!".

How many of these things are we going to go through before the client starts to question your ability as an inspector?

If were going to size wire  and circuit breaker capacity, I think we should understand what we're doing, not rely on asking someone else to do our job.

All good points indeed, David. "if you're going to discuss something significantly deficient, you need to have something to support what you are reporting". As for myself, I consult Code Check Complete book, maybe a little research from support material I have acquired over the years, as well as the mb's on this and other sites. I believe that is support enough. "I think we should understand what we are doing, and not rely on someone else to do our job". Personally, I don't want or trust anyone else to do my job-it's hard enough to do it in the first place. I do, however, rely and count on the wisdom and expertise of Senior and/or experienced members such as yourself and a few others, who seem to care enough to post or reply. The replies are not always what we want or even expect, but usually valid and worth considering. I saw a wise man's post not long ago-"I don't post here to make you feel warm and fuzzy"....Just sayin'. 

Yes, back to the OP.  I believe the question was whether a 30 amp breaker protecting #12 wire is acceptable or should be called out as a defect.  I would call it out as a defect and recommend that the circuit be repaired.  Whether the breaker should be changed to 20 amp or the wire to #10 will be determined by the licensed electrician when he comes to repair that along with the double taps, doubled neutrals, mis-wired receptacles, GFCI problems, etc. that I invariably find as well.  The fact that it has worked since 1995 really has no bearing on whether the circuit is incorrect.  Over the years I have seen many circuits (residential and industrial) overloaded well beyond their "code" rating without showing any signs of failure.  Likewise, I often see electrical situations in a home that I know are extremely unlikely to cause a problem (especially if the situation has existed for a long time) but I report them anyway because they are just incorrect.

Finally, opinions vary and everyone is entitled to one.  No offense intended.