It takes the responsibility off of you to make something work.

Home depot/lowes sells mold test kits you can use once the basement is dried out.Once you have the basement dry, the next order of business is to figure out the cause(s) of the flooding, and hopefully address those causes to prevent future floods.There are multiple potential reasons for your flooding--it could be ground water rising up from underneath the house, it could improper drainage around the house, it could be cracks in the foundation or slab, it could be water coming in through the window wells, it could be all of those things, or it could be something else entirely.  

The easiest place to start is figuring out what you can afford and then looking for something in that price range where you can get the most possible rooms.

After attorneys get involved, parties usually settle for something like 50/50.

Louis, Cleveland where your money will go further than in SD.If I were just starting out again I would take the money you have to buy some niche data and wholesale some deals get another $50K and then you will be in a better position to find something here to flip.

If he/she states something like “this is a no risk proposition” and there is risk, that may be fraud.  

Is this something I can still ask the builder to fix?

@Paul B. made a great point that anyone can close on something if they overpay.

They know that they will take the hit if they do something objectionable.I have pulled cash from the deposit on occasion.

Do something else/invest the money instead.