Backdrafting at a water heater is a common defect identified during home inspections, and it's almost always a condition that the homeowner or occupant is not aware of. This happens when the exhaust gases from an atmospherically vented water heater spill out into the room, rather than safely leaving the house through the vent. Exhaust gases contain carbon monoxide and high levels of moisture, so this is always a condition that should be corrected.
An atmospherically vented water heater is a type with a draft hood, which relies on gravity to get the exhaust gases out of the home. Exhaust gas is hot and therefore lighter than the surrounding air, which is what allows it to rise up the vent and out of the house. These are very simple devices that require no electricity to operate, however, this isn't a very reliable draft method. Today I'm going to share some clues that could indicate a problem with a water heater drafting properly.
Melted plastic at the draft hood.

When the plastic at the top of a water heater is melted, it's pretty much a guarantee that the water heater has backdrafted. I've heard some folks claim that the plastic melted when the water heater was being installed, because someone got too close to the plastic with a torch while soldering the pipes. That's possible if the solder joints are very close to the water heater tank, but very highly unlikely, especially when the part that's most melted faces the draft hood.
Corrosion at the top of the tank

Backdrafting exhaust gases can condense at the top of the water heater tank. Over time, this corrosive condensate will begin to corrode the top of the tank. A leaking shutoff valve can also cause corrosion at the top of the tank, but that type of corrosion is easily distinguishable back corrosion caused by backdrafting because the worst area will be located directly below a valve.
Moisture at the top of the tank

If you can see condensation at the top of a water heater tank, you're basically watching the water heater backdraft. The photo below shows moisture, rust, and melted plastic at the top of the water heater. Click the photo to see a large version, showing this water heater backdrafting like crazy.