If it's just a water heater, it does sound too expensive. If they have to replace a bunch of pipes, it's not.
I spent 5400 on a new boiler 2 months ago, right after the plumber finished putting in a new bathroom for me in the attic, running new pipes to the third floor, and you don't want to know what THAT cost - and that's with my brother-in-law running the drain pipes with my DH (BIL is a plumber, but he didn't have time to finish the job for us because he had too much overtime at his real job).