Your money helps protect against the lender taking a loss and makes it less likely that you will walk away from the project.

If the buyers feel like they should get more money, they can do one of three things:1) re-negotiate with you to amend your original contract2) walk away from the closing table and refuse to sign (basically bringing the deal to a halt)3) suck it up and sign.I can't imagine a closing attorney would hold money back for any reason, unless he had it in writing and signatures from both parties that money was to be held back... that seems beyond me. 

Should he just walk away from it and let it go into short sale/foreclosure?

Walking the streets?

He's got a great template to use when walking through homes and estimating rehab costs.

They look nice in the photos but when you actually walk through the homes you can see so many unfinished details or areas that just weren't repaired at all. 

We dont get along with each other, because I stand up to her & don't let her walk all over me, the way she thinks she can

For example maybe the issue is not that the landlord is keeping rents artificially low but that walking on the living room floor is like walking on a boat and there's significant functional obsolescence throughout the assetLandlords do often keep their rents artificially low, but if you were a lender you would agree that someone throwing good money away is also a little insane and potentially suspect.So these are just a few of the reasons that you and/or your lenders and investors are forced to value your target property on how the property is actually currently performing.On the other hand, as opposed to doing a single valuation you should be doing a full pro forma.

I arranged a time where the buyer can go walk through the property (I contacted the seller, the seller arranged with the tenant) and boom, the buyer wanted to pull the trigger at a price where I made $5k profit.

There may be very simple things you can do to walk them through the process and get a lot better conversion.