We cannot answer that question for you. Personally, I'd take a foot of water in my crawl space WITH a great floor plan in a great location over an engineer's love child plunked down somewhere that I'd never want to be.
I think you should figure out what you're willing to walk away over, and why. It's not for us to say. Even at "top dollar."
All the best,
You could continue toward the purchase if you have the ability to walk away unharmed after the reinspection of the work if you are not completely satisfied. Water in a crawlspace is not an unheard of situation and a good inspector will catch signs of previous events once they can fully investigate. If the seller's prove to be unreliable about this issue, how can you trust them about anything else that may be wrong with the house?
Now I do not know Washougal real estate, and if the market is hot and the home meets all of your needs then go ahead and bite the bullet and get the home after addressing these issues. If the home has been on the market awhile the seller should realize the issue and pay for the fix, since after all this will now have to be disclosed in the seller disclosure statement...but maybe the seller's funds are tight?
Hope this helps!
You have a good Inspector who found the problem.
You have access to plumbers and contractor; all of whom can visit the property and view the carnage:
Why are you ask us; who cannot see what you are talking about?
It sounds like a plumbing leak; is that what you want to hear?
Do you want to walk away from the deal because of a leak?