Not true. Once you remove the walls, the building is non-habitable. Now all you have is an old foundation. The 'new' building must be built taking into account the current building codes, rules and regulations; not regulations and codes from 80+ years ago.
For example, I made a bid on a home on 1 acre of land in Austin,TX. My inspector found a problem with the septic. End of story, I could not simply modify/repair the problem; I would have to remove the entire septic system and update the entire system to meet current building codes ($50-85,000). Yep, this was a deal-breaker. Too bad, I'd have loved to have that lot.
Sounds like you were quoted way high.