Do I play hardball and risk losing the deal or just accept to buy at my original full price offer?

No, It's not easy and more people lose money than make.  

Did the tenant or the previous PM lose the key?

If the insurance company is making money, that means by default you are losing money.  

They are not your legal counsel and cannot act as such.This type of joint venturing with yourself is promoted by some as safe and clean.  

I don't know if that's an excuse, but at this super early point I don't feel like I should be wasting agents' times for example, risking losing credibility for the future if I know I'm not moving forward at any point in the next few months.  

Purchase price: $180,000 Cash invested: $50,000 New Venture for me to work with my Sister to create a space that carried a vision for her company/brand.

Obviously it is a good problem to have but I know if I am not smart about this I can lose my shirt.

Too much work to lose 40% to taxes and transaction costs too high.Mine generally meet the1% rule pre-rehab. 

Insurance and using an LLC can provide you with great protection(keep you from losing big if any legal issue ever comes up) and is affordable even when starting out(even potentially free for the LLC part).