That's a pretty bold assumption that someone who has a pitbull is automatically selling drugs.

You're profiting off folks who are taking a bath even when real estate is red hot.

Is this the norm or a red flag that the purchase price needs to be lower for the deal to work?

I always use mold resistant drywall behind tub surrounds and next time will add a layer of Red Guard too for extra protection.

Too many red flags for me.

Lying about it or trying to hide it would be a red flag, but as long as they were up front with you and haven't violated their probation I wouldn't be too worried about it.

Because it sends up a red flag that perhaps I missed something and I need to look closer at the numbers/etc.

If you have a current job maybe keep your business to yourself there so you don't raise any red flags with your boss.

You can't force anyone to share info with you but I view it as a red flag if folks are not being transparent about a cause of a situation like this. 

I live in the Seattle area, where I have a couple of SFH rental properties which I bought a few years back, now they all have significant appreciation due to the red hot Seattle market, now I'm trying to figure out the best strategy forward.