Keep in mind – just because you walk away now doesn’t mean you won’t get the house. The fact that they must now disclose whatever it is you found will make it very hard to sell. If it goes back on the market and lingers, maybe you could jump in at $200K less later in the Summer.
Or, instead of walking away – change your offer to $150K lower. Make them walk away.
Wouldn’t surprise me if they pull it off the market, wait a year and try to sell it again, pretending not to know about the problems.