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I am an attorney with 30 years of experience; I hope to provide you information that will help you in resolving your question.
I imagine that you are looking for confirmation of that which you already know. In quoting from the purchase agreement you have already answered your question:
"Buyer, at Buyer's option, may either (a) terminate this agreement with prompt return of earnest money to buyer or (b) elect to close the transaction, in which event Seller's right to all real property insurance proceeds resulting from such damage or destruction shall be assigned in writing by Seller to Buyer."
That answer is Yes, you can walk away or if you wish to move forward demand a proper accounting of the money's received for the damage and assignment of any funds paid for that damage."
It is likely that the seller will refuse however, and then you will either walk away or try to obtain additional concessions. The dollar amounts that you are describing, while significant, are not sufficient to justify the costs of the litigation to enforce the provision in regard to seeking the funds. The attorney's fees (not to mention the time investment) likely will not warrant such litigation. You can of course insist that the repairs be completed properly and to your satisfaction, have the price reduced by the cost of the additional repairs, or walk away.
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