You've gotten a lot of good advice above.. bottom line is-
The fixes and changes outlined by the survey are typical and you'll likely find the same with most any older boat you go after - extinguishers, flares, fuel hose, etc are going to be tagged in nearly every case. All of which is in the DIY category. The heater may well be an insurance liability.
Armed with this survey, I see nothing wrong with your current plan to offer something closer to the market value, as your original offer was subject to this survey.
The seller may well make a substantial move now that a deal is close - refusing will cost him more money as he is liable for moorage etc as long as he owns it.
As tough as this may be, act with your head, not your heart - as someone said, C27s are common as dirt - lots of them around.