[EC900]

Sometimes dealing with clerks at the DMV counter could be misleading and provide scripted standard operating procedures.
You may need an appointment with a supervisor for a sit down.
I can’t say I know what VA does with titles not in their possession - but Carfax probably listed the repair (so check on that).
Did VA ask for title surrender so they can add “Salvage”? You have the original title?
Did insurance company I presume, already deem it salvaged ? $5k seems too low for a salvage buyout retitle but enough for an hash mark on the Carfax. This needs clarification from DMV and not one of their standard policy monikers.
It’s rain water (repair) Not Flood damage. This should have been the argument. Maybe not too late to contest the branding - worth a try again.

Sometimes an inspection depending on State can be performed, sometimes re-issued title in another state will deem if a car is safe in cases of Crash Rebuilds and release a new Clean title.
I bought a used VW Jetta with Ins. Salvage damage.from a friends body shop, I seen car before repairs and after new used trunk, bumper skin and paint was more than the car was “worth” (acc. to Ins) no structure frame damage. Would have added $800 to the car to have it shipped to CO for a new title inspection, but that what’s-what with a $1000 car.

You may need to consult with the upper local DMV authority for concrete advice. I’d continue in person to get the title rectified and see if other hoops can be jumped through.
Salvage title can knock 30% off a value is some places.
You have the repair order diagnostic and maybe documentation of the actual instance but prospective Buyers will find the Branded Title unsettling and some will be care less because of water damaged carpet and replacement ECU. Still skeptics will be wondering. To each his own applies.
Doesn’t matter where you list the sale BaT or PCA etc, marketplace exposure traffic on 911 seems daily but Branded title will sting.