This partially disconnected water heater exhaust flue is discharging unwanted exhaust gases (including carbon monoxide) into the garage as shown in this photo.
In this Walnut Creek house, there was a bedroom above the garage ceiling... not good, if exhaust gases accumulate and there's a breach (gap, hole) in the ceiling.
A requirement of a properly installed water heater exhaust flue is that the beginning of the exhaust duct sections be mechanically secured with three sheetmetal screws to the water heater (putty color) draft hood.
In the event of an earthquake or the exhaust flue is accidently bumped, the screws help keep the integrity of the exhaust vent from coming apart.
In the photo, it appears that the water heater installer used aluminum tape to secure the vent to the water heater's draft hood... It doesn't take much exhaust gas heat to soften the tape adhesive; and separate the vent from the draft hood.
Home inspectors should thoroughly inspect the installation of water heaters.