I think she saw the couple as elderly all along. She did not look surprised when they met her at the door. Also, she was not bothered by his gawking at the female neighbor. When the birds were being buried, she did not see the same young woman outside. Only, he saw her. She looked very puzzled in the direction that he was staring.
The interrogation by the young , skeptical cop was stupid and just did not fit with the direction the story was going. Especially, since his older partner and most of the town were aware of the previous tragedies and supernatural attributes of the house.
Also, the cops had to knock the wall down to get Sarah! The cop could not explain that one. Oh and the woman with bee stings- they attacked her in the car! They had to give this woman a break!
I think that it was his blood on the ax. When he was n't posturing in a sinister way with the ax or knife, he was holding them with the sharp end in his hand! Okay, not a great explanation. Actually, that guy did all sorts of things with those tools except make furniture! I actually found this very funny. I am sure it was not intentional. I did expect him at some point to be wielding that silly ax screaming "Heeeere's Johnny!"
So, I think Mr. Handy Man did what she said. He burned the house down.
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