Any idea how to resolve it? 

A demand letter should be sent before a lawsuit is filed.I would also try reaching out to the contractor again and let them know you would really like to resolve this without a lawsuit, all he has to do is return your money which he is not entitled to keep without doing timely work.Finally, are GC's licensed in your state?

Have the seller draft and sign a nice letter stating her request, along with a sidenote stating that she will contact the state bar association if this matter, which she has been attempting to resolve for months, is not addressed in the next week. 

If it is unable to get resolved, contract will terminate in 14 days, assuming there is no pending contract."

Oh yeah and I forgot to mention that when the section 8 tenant complains to the case worker about the issue section 8 will do an inspection.They will give a notice to you citing the problems with the property and a time line to fix.If you haven't resolved the issue by that date they will put a freeze on your monthly rent payment.So if you make 600 month they will pro rate the numbers of days until you fix the issue and then give you that rent money.They do this at least in Atlanta to make sure the landlords are maintaining the property and fixing issues.If the landlord doesn't the only thing that gets the landlords attention is not getting the rent payment from section 8.

Yes, parking is something we are working to resolve.

How do you plan to resolve this problem?

Yes they will if you show pictures that your house needs 50K in reno vs the comp at a way better state. 

If not what have you resolved/accepted  to be your new acceptable margins?

Can this be resolved or can we lose the home?