Knob and tube nightmare

This is the second house I've fallen in love with that has a knob and tube wiring problem. We put in the offer to have this fixed before we close but the seller is only willing to spend up to $500 to fix it and it's probably going to be more like $3000 to fix it, according to our realtor. This may mean that we have to walk away from this house, making me very sad. The last house we liked the owner was unwilling to fix it. Basically, insurance companies won't insure houses with it so I don't see how they're going to sell this house without fixing it. They want us to get an estimate so that should be on our list for this week as well as the mortgage application and the inspection. I have a feeling that the offer craziness was just the tip of the iceberg!