The seller is responsible for repair/replacement. The property is still in the owner's name. At this point the buyer does not know extent of damage or costs. But for prospective buyer(s) I would not proceed with close until possible resolution is reached between buyer and seller. Have your Realtor contact the company's Attorney for proper escrow amendments to delay escrow until water damage is resolved between buyer(s) and seller(s).
This is an unfortunate situation, but a least this happen before close and not after property was transferred to new owners. I would not proceed with close.
Gail Mercedes Cole
You might postpone the close until both agents come to an agreement on how to fix this.
Best of luck!
You can stop Escrow from moving forward until the issue is resolved to your satisfaction.