If it is unable to get resolved, contract will terminate in 14 days, assuming there is no pending contract."

Oh yeah and I forgot to mention that when the section 8 tenant complains to the case worker about the issue section 8 will do an inspection.They will give a notice to you citing the problems with the property and a time line to fix.If you haven't resolved the issue by that date they will put a freeze on your monthly rent payment.So if you make 600 month they will pro rate the numbers of days until you fix the issue and then give you that rent money.They do this at least in Atlanta to make sure the landlords are maintaining the property and fixing issues.If the landlord doesn't the only thing that gets the landlords attention is not getting the rent payment from section 8.

Yes, parking is something we are working to resolve.

How do you plan to resolve this problem?

Yes they will if you show pictures that your house needs 50K in reno vs the comp at a way better state. 

If not what have you resolved/accepted  to be your new acceptable margins?

Can this be resolved or can we lose the home?

@Adam Beasley I think you have two goals for this property that are not compatible - 1.

Property not occupied and the basement has some water, but think it can be resolved with a sump pump which is factored into the rehab costs, and having a foundation company evaluate prior to close if the offer is accepted. 

If she offers additional information that resolves the issue, then you can consider whether you want to try again.