This is not uncommon

They can otherwise add the $3,000 back to sale price and send you a counter.

The real question is: do you still want the property now that it is $3,000 more expensive, or don't?

Most lender controlled properties don't pay home warranty (it's only a few hundreds). Escrow fee usually is split between buyer and seller.

Owner's policy usually is paid by seller. They offered $1,000 upper limit, which should cover a modestly priced property.

So it is not entirely unreasonable.