You need a good lease agreement, landlord forms library, educational material, and landlord attorney to guide you. 

The quote was $5352.00 ($3,650 for labor and $1,702 for materials).

Contractors don't make a living off marking up material prices.

What if the new owner backs out of the job and gives it to their "regular guy", will the original contractor come after me for any expenses/materials spent?

That property was run down, smelled funny, and it looked like the cheapest materials were used in there which are just going to fall apart year after year. 

In the past, I've seen an owner put metal military bunks in the rooms, bunkbeds.

The material is interesting, there is no upsell, and you do get a fancy certificate by email.

Your mortgage payments may be fixed, but your taxes and utilities will increase, your maintenance material costs and labor rates for repairs have gone up, and your property is wearing out (appliances, flooring, water heaters, furnaces, roof, etc. all have a lifespan and will eventually need replaced). 

If you have given the contracdtor a deposit and that deposit has been used to purchase materials, & those materials are in your property I would;1.

I am no CPA (and you should consult with one) but how do you plan to meet the IRS material participation rule with a $400K W2 job.