2011 - Should I keep with new motor, or sell back to dealer? - SOLVED!

Hi, quick question for the experts on this forum. Recently purchased a 2011 Forester 2.5xt from a local dealer that my family has known and trusted for years. Had it about a month when we took it for state inspection. The inspection revealed many issues (car failed big time), but most significant was oil in the coolant which speaks to a possible gasket issue. the dealer was highly apologetic and wants to make it right. They acknowledged that they screwed up in not giving the car a good inspection when they sold it to me.

To cut a long story short, they have offered to buy the car back from me for the price I purchased it for OR install a new motor with one year warranty (unsure if the motor is truly “new” or used with the warranty - maybe it doesn’t matter that much?). The car has 130k miles and body is in great shape. The dealer seems to be ok with buying it back because I believe that they think they can resell it at the same price with the new motor. What would you do in my shoes? Other questions I should be asking the dealer before deciding? Appreciate any advice.