The cost depends on the size of the house, number of floors, and also, if it is knob and tube there is probably the old style fuse box, most likely 60 amp service. In pennsylvania, you cannot insure a house with knob and tube, and the 60 amp must be upgraded to 100 amp with circuit breakers. This job will run into the thousands, everything needs to be replaced, circuit box, meter, wires, plugs, light switches, everything, including most of the fixtures, as they are probably as old as the wires.
As an agent, I would first get an estimate, from the service to full wire replacement, and either deduct that entire cost from the offered price, or give the owner the option of replacing it at their expense. Don't know where you are from, but in this area, the housing market is very slow, there are many, many houses on the market for more than nine months, without any offers. Do not offer the asking price, get the work done by the owner, and check with your insurance providers. If the wiring is that old, I would be wondering about the foundation, roof, plumbing, furnace, and other things in connection with this house. There have to be a dozen more homes within a one mile radius of that home that need less work.
I just noticed you have already made an offer. How could you make an offer without knowing this? Was there a seller's disclosure? If this was not noted, then your can back away from that offer. Do you have an agent? If not, get one, or you run into this kind of problem again.
Remember, the seller pays the agent fees. Get someone who knows the laws, rules, pitfalls, etc.
Later
Albert