They can pay out of pocket to replace or repair all damaged portions of the property prior to the sale, demand top-dollar for the value of the property, and, as part of the transaction, retain all rights to their claim. The amount spent making repairs becomes the new damage amount that forms the basis of the claim.
They can sell the property in as-is condition (with the damage resulting from the claim unrepaired) at a reduced sale price and retain the rights to their claim. The amount credited to the buyer in the transaction becomes the new damage amount that forms the basis of the claim.
They can sell the property in as-is condition (with the damage resulting from the claim unrepaired) and assign the claim rights to the buyer. In exchange, the buyer would agree to pay the value of the property once it is repaired (over the actual current value of the property due to its current condition) based on the expectation of receiving the rights to collect the insurance benefits for the difference.
In any scenario, it is crucial for the seller to keep the best and most accurate records possible (such as photos, repair estimates/invoices, proof of payment, etc.) and to be honest and transparent with all parties involved in the sale to avoid litigation for failure to disclose required information to the other party. Failure to disclose all legally required information can expose the seller to a lawsuit—or even prosecution—depending on the circumstances.