Drywall – Can this sheetrock be repaired or does it need to be replaced

The risk would be that the compound wouldn't bond to the scraped-away area, or that the remaining drywall would crumble over time. It would be much better to cut out the area and patch it, and it wouldn't be that much more work.

If you do decide to try it though, you might want to use some fiberglass mesh tape to reinforce the patch.

First off, never assume anything. You should take some pictures and know the basic dimensions of the house. You could talk with some local contractors, armed with pics and dimensions and get some ballpark prices. New siding on an existing building can go $250 to $400 a square (10ft X 10ft), removal and replace.

Just because your inspector found some rot, don't expect the sellers to discount for an entire siding job. You can try for what ever you think you can get, but I bet your offer to buy contingencies won't cover that. Unless the inspector committed and said the siding was unserviceable, you will need to negotiate.

Wood siding can last 100 years if well maintained, but I have seen 20 year old siding that was junk. The type of wood, whether the wood was back primed when installed, and how often it was stained or painted will make a huge difference.

Although this is not in a pure sense a home improvement question, I could not stand to not answer this one. I am a home inspector and these questions come up all the time with my customers.