Would this small regional bank be willing to finance it to your son under favorable terms to sweeten the deal, especially if the alternative would be HML with 10%+ rate + 2% in points to originate?

The idea of sweetening the deal for the contractor is a great idea! 

If thye give you a hard time about it, tell them you will sweeten the pot by increasing their net proceeds.

If people need something to sweeten the deal, instead of just writing down "big screen TV", describe it, have them visualize it, even leave a picture of it for them to hold in their hand and think "wow, wouldn't it be nice if we had one of these?"

Look for ways to sweeten the deal so she will accept your financed offer.

You might consider submetering, which would have a nasty little one time cost, but could then you could chargeback their utility usage accurately.The cheapest, easiest solution in your case is probably to charge a higher rent then offer the "free utilities" as a sweetener.

Anyone have other ideas I could use to sweeten the deal for him? 

When selling, I always prioritize cash offers unless the financed buyer sweetens the deal.

You either sweeten the deal or ask for EMD refund.

I want to offer less than asking price, but sweeten the pot by letting the buyer know that I'm not going to push hard on repairs unless there's something really wrong with the house.