1. Yes, such contingencies are still used. But in this case, the bank will certainly not take your offer seriously if you use such a contingency.

2. A good inspector will know what to do. But make sure (1) you don’t go with an inspector recommended by the seller/bank/listing agent, and (2) you pay for the inspection.

Financially speaking, it’d make sense to rent a similar property for 2-3 years, and then (in the future) start making low ball offers. Catching falling knives this early in the down cycle is a sure way to lose money. If prices drop only 10%, you’ll have close to $150K of equity wiped out.