S: Yes it is done. How common is it? I really don't have statistics but I'd say all too often. Here's why:
Your zip code indicates a Trenton address. You may or may not be buying in Trenton but Trenton and the surrounding townships have much more than fire and CO inspections. Trenton, for example, has, in addition to the physical inspection itself, certification requirements for Roof, Chimney and Heater. These certifications are also reasonably expensive.
The CO inspection and its repairs are, by ordinance, the responsibility of the SELLER. SOME (but not all) municipalities allow the buyer to "assume" the responsibility for the repairs, more often in the case of developers buying rundown properties than for the buyer-resident. If the assumption is allowed, there is usually a ban on residency until the property is brought into compliance with the housing code. There is also a time limit for this activity, which can, at times, be extended, especially if some progress is shown.
Another useful fact is that some municipalities will inspect before any sales contract is in place and the inspection and CO, if issued, is good for a period, sometimes six months. This allows the buyer to assess just how many repairs are need FOR THE CO (there may be thousands of dollars in additional repairs not spelled out) and how much the CO repairs will cost before they make an offer. Other municipalities insist that they will only inspect AFTER a contract is in place.
Now, in my opinion, the seller is responsible for the repairs and "capping" them is not helpful to their selling effort in the long run. In most cases, I'd counsel my sellers not to do so, unless, A) they were already in financial distress, or B) They were accepting a very low bid.
On the other hand, I've seen many developer/investors accept the CO (and any other) repairs as part of the revitalization process. Most repossessed properties, sold by the mortgage company, are sold only as-is with CO repairs the responsibility of the buyer, (Including the certifications.)