Yes, you apprise your buyer of what you are being told. It's their purchase and their decision. Is what the other agent credible, do they have a good reputation? Did you discuss what the seller's felt would be more desirable?
You have several ways to go, but our job is not to decide for the buyer, but inform and advise them of the options and the consequences you suspect may come with each choice.
Waiving and inspection is a very tough thing. If they feel that's an option they want to seriously consider, you could waive it, but conduct one anyway. Do a very short timeframe inspection, tell the sellers you won't ask for any work.. but want to know what you are getting into, or just do a 5 to 7 day inspection timeframe and hope the dollars outweigh the seller's fears of what the inspector will find.
Just let your buyer's make that decision.