I have heard of plenty of law suits where the seller loses in these situations or the earnest money is held in escrow for years while the matter is argued between two parties.

Don't know who you are talking about but I don't argue, I educate those that have the capacity to learn. 

I could see the sellers arguing that it wasn't a legitimate reason and demanding at least part of the earnest money, but I can't confidently tell you one way or another.Most common in the SF market right now is to offer with an underwritten pre-approval already in hand so there doesn't even have to be a finance contingency. 

BOOK READS:The book on rental property investing Abcs of real estate

Some argue 10% is too much.And then, last but not least, don't forget that you have to pay taxes on the rental income.  

I believe it is a BC law that a duplex can never have a legal suite, so if they do make it legal at some point the duplex properties with basement units will still not be legal. 

ABCs of Real Estate Investing by Ken McElroy2.

Try to know the market AB C or D

You want to argue the cap rate used instead of the dollar amount of the purchase price.

It's really your call and he will argue he should be entitled to a rent rebate.