If the buyer truly does want to continue purchasing this home and their blinders have been taken off then we have to look at many other things. Was the property priced for a property with this issue, or was it all full market value? How much would it cost to repair the issues, and does it affect the health or safety of the client.
I would then get together with the other agent and lay the answers down on the line. They may or may not be willing to sell it for less, but my client can choose to not purchase the property.
Depending on the issues the seller may choose to fix all, some or give the buyer a cash settlement to have the items taken care of. It is uncommon for the price to be reduced on the home, but it is possible.
Buyers need to remember to request on items of safety issues or big ticket expenses to be taken care of at this point.
In the case you have stated, all the items appear to be significant. If the house wasn't priced accordingly that may be a good reason to seek a price reduction. If the condition was taken into consideration in the price then there may not be as big an issue as it appears.
You will have to determine that based on the facts. Good luck!
It also depends on the ordinances in your community. Some areas require a city inspection to make sure that the home meets current codes. In those cases, anything found would be the seller's responsibility.
1. Discount so you can do the repairs.
2. Raise the price and let the seller do repairs.
3. Same price and seller does repairs.
4. Same price with money in escrow for you to do repairs.
5. Split the costs.
Sellers have been asked in the past to repair or correct deficient items that came up in the property inspection rather than reducing the price.
Given the serious nature of the problems you listed though, I would recommend my buyers take careful consideration as to whether they want to proceed with that particular house. Every state and every contract is different, so I hope you're able to walk away if necessary, and not lose your good faith deposit.
Your description of post-inspection findings is alarming. If I were your agent I would be taking a good long look at the discrepancies listed.
Are you certain you want to negotiate a new price? The items you listed should be cleared before pen is placed to paper. The "illegal additions" could stall the whole transaction - if proper permits were not filed.
You could be held liable for the shoddy condition of the property once you become the "owner", i.e. outdated electrical system and foundation cracks - if they are that bad the property could be condemned until they are brought up to code.
Think long and hard - there's a lot of property on the market. This seller should have disclosed a lot of what the inspector found - before you agreed on any price.
I assume you have an agent - but from your question it sounds as if you do not. My best advise to you after all this is to get an agent - and get yourself represented!
As always, consult your attorney for their input and advice.