I went to a house auction yesterday and realized I was standing right next to cash buyers.  

Could I not just increase earnest money deposit from the next buyer buying from me?

We (my attorney who did the first closing) offered a letter of indemnification to the new buyer, but he refused. 

my buyers agent submitted it to the sellers agent.

When doing wholesaling, does the seller and buyer transaction occur on the same assignment contract, or two separate ones?

They are telling the current owner that he can not apply because he bought the place and knew that it was a single at time of purpose but that as the buyers, we could argue for financial hardship because no one would buy a 5100 sq ft SFR.

It's a deal that I'd wholesale, but I don't know if there's cash buyers in the area.

The value of SFHs is driven by home buyers where as multi units value is based on rental income.

Just keep shopping.One additional thought to what Jeff said about the leverage a selling broker has over a 1031 buyer - There is no requirement to reveal the 1031 when going into contract. 

They asked me if I wanted them to assign the lease option to me so I could buy it with the already equity tenants have in place.My intention is to wholesale this deal so I don’t know if I can have the lease option assigned to me and then I assign it to the end buyer.