This stage of the negotiation process can be really tough. You got through negotiation of price and terms - and now you're dealing with this. This can often be the most emotional stage for the buyer and seller. Regina makes *excellent* points below.
I council my buyers to focus on the big stuff to help minimize the emotion. An inspection comes up with lots of things -- the big and the small. If you load up your inspection repair request with small items (minor wood rot on front-door trim, closet door in master doesn't latch closed, etc.) with big ones (water intrusion in basement, etc), then you come across has being very petty and unreasonable. The seller will more readily evaluate you based on the minor items you've requested, not the big ones. Did you ask them to replace missing door stops? If so, you've likely turned the sellers against you and hardened their position to do "the minimum". If not, the seller may not evaluate your requests as "significant". Or, lastly, the seller has had enough and simply won't do more.
The best - and often the hardest - thing to do is to take all emotion out and just look at the numbers. How much would it cost you to fix the 'significant' items from the report? Is this still a good value for a home that meets your needs? If so, then perhaps you should accept the sellers terms and move forward. If not, then have your agent communicate why your requests are reasonable and necessary from your perspective. If they still won't budge, then void the contract and move on to the next one.
You've received excellent answers from everyone involved in this discussion. In my experience, sellers may take issue with a "second negotiation" on price (the "first" negotiation being the sales price), sometimes viewing request for repair credits as backdoor negotiation. In particular, if a buyer pushed very hard on the contract sales price, a seller might push back equally as hard on home inspection credits.
As Bruce points out, ultimately you're left with one question. "Did I buy the home for a good price, so am I comfortable with making the necessary repairs."
First, be very aware of the time frame. In our area, Montgomery County, MD, each side only has 3 days to responed (the first day of the count starts the day after noticer is received). This can go back and forth with each side providing notice to the other and waiting up to three days for the responser until the issue is resolved, one of the parties misses a deadline, or the contract is voided. Unfortunately, the sellers are not obligated to fix anything or provide closing credit outside of what they are contractually required to do. In a buyer's market, usually the sellers are more willing to fix things or to provide credit out of fear of losing the buyer. With other sellers there's a sence of pride of ownership, love of house and genuine desire to pass on the property in the best condition they can (I love these kind of sellers!). In other instances, the sellers can dig their hills in and not budge an inch. Sometimes this happens if the sellers feel that the sale price of the house is too low or they already spend more on fixing things up then they ever intended or in instances where the sellers have been "beaten up" about the sale price of the house. As far as negotiations are concerned... Both agents try to do what's best for ther respective clients. But regardless of how much we urge the other side to agree to our position, the ultimate decision is up to the client. If the seller is refusing to give you a credit for anything that's not contractually required, you have a choice to make - to accept the seller's decision or to walk away from the contract. In making this decision, consider all the factors. How much will the repairs cost you vis-a-vis the purcchase price? Will this still be a good purchase for you? How much do you love the house? Do you plan to live in it for a long time so that you can fix these items over a preiod of time rather then all at once? Or is this an investment in which scenario everything does come down to a dollar amount? Good luck and be mindful of how little time is left for your decision and response.
May you and your family have many years of happiness and good health in your new home!
If the seller is going to do the work, make sure the repair is completely written out in detail. (ie, not "fix roof leak", say "flashing needs to be replaced, shingles need to be replaced, etc.). Be sure to indicate you plan to have your home inspector (or contractor) return before closing to verify the work was done correctly and completely. You will also need to make sure the seller has a licensed contractor do the work and provide a receipt, statement of work and warranty transferable to you.
As an aside, the lender will limit how much of a credit you can receive. It's also illegal for the seller to write you a personal check if the lender doesn't approve the credit. So, if you are already getting closing cost assistance, you may be better off letting the seller do the work.
If you have submitted notice and the sellers have countered, you can either Accept, Reject, or Counter their offer. If they are at their bottom line, final offer, then you must decide if you want the property on their latest terms or not.
The answer to this question most likely varies depending on where you are.
In my area, following the inspection, the buyers have their attorney send a letter requesting the items they want the sellers to address. Depending on the inspection results, there may be a laundry list of items, or just a few. The items are supposed to be limited to structural issues, but often larger cosmetic items are listed, as well. This begins a whole new round of negotiations. Often it involves getting estimates. Sometimes the seller will have the items repaired - often an appropriate credit will be given. The bottom line is, in my area, if the sellers won't address issues (not a cracked tile, or loose doorknob -- but more significant issues), the buyer can cancel the contract, and any escrow money is returned.
I don't know the legalities of contracts in your area. Where I am, most buyers can get out of the contract if they are displeased with the home inspection, and the seller won't address their concerns. You mention problems "outside of contractual obligations". I suggest you check with your Realtor and a real estate attorney to see what your options and legal rights are.