A water heater system includes a gas burner configured to selectively produce flue gases, and a heat exchanger for heating water in the water heater system. The water heater system is operable in a heating mode, and a standby mode. An exhaust assembly is in communication with the heat exchanger, and includes a condensate collector configured to receive the flue gases and condensate. A first temperature sensor is positioned to sense a temperature of the condensate within the condensate collector. The first temperature sensor is configured to detect a rate of temperature change of the condensate. A controller is configured to determine a leakage when the rate of temperature change adjusts from a first state to a second state when the water heater system is in the standby mode after the water heater system was in the heating mode.