Michael,
I wouldn't say this is unethical, maybe a little devious though. The seller(s) most likely have a better offer in their back pocket. An offer that wouldn't require such costly repairs or an offer that reflects the repair prices. At this point you need to counter back with lesser requests or decide if the purchase is worth it "as is" for 388,500 without the repairs. I would advise you to talk to an area contractor to get an estimate of repairs before you continue with this transaction.

No, it's not ethical. The better question is what can you do in this situation? I'm sure a realtor or attorney will chime in with an answer to that question. But, good ethics are playing no part in what they're trying to do.

I wish you the best of luck and, honestly, there are a lot of homes out there. We just had two fall through on us, but now we're buying a house we actually prefer. Remember, all you've lost at this point is the money for the inspection, which is small considering the investment you're about to make.