each lot is unique and each city is unique... until you have a house plan.. and an engineered foundation that is approved by the city  and that is put out to bid.. there is no way to know exactly what your build costs would be other than to spit ball .... and really depends on the soil stability to start with

On the other hand, the home I'm buying in Sandy had the appraisal completed and turned in in less than 10 days from ordering it. 

Sandy,Great to meet you.

It all depends on the quality and type of soil you have 2 feet underground.  

On Amazon, some good tax authors are Diane Kennedy, Mark Kohler, Sandy Botkin, Stephen Fishman, Tom Wheelright.

Only 2 cases of Flood (Irene and Sandy)Management $5700 (10%) - even that it will be self-managed, I am putting this as expenseWater $1200Vacancy Rate $2880 (5%) - is that enough?

It's just another thing for neighbours to complain about (overgrown lawn) especially in certain neighbourhoods like Sandy Hill in which tensions between neighbours and students/landlords are high.

2) given their offer would cover more than my capex costs if I just did the $4,000 soil leveling, what would your next steps on the negotiation be?

Congrats on your first owner-financed deal Sandy!

We sold this property even though it was awesome (on the sand).- I have no problem finding cash flow properties in my chosen area in So Cal.