(Most of this information comes from Reuters.)
Questions #2 and #3 seem to treat Trump's statement that this was a bad deal as a "fact" (I think SQB's original question asked directly whether this was a bad deal, according to his comment, and I think that should remain part of the original question). While a "bad deal" might be opinion-based, I think we can at least compare the net price of getting a modern, secure facility and judge that this was not a "bad deal."
Key portion of Trump's statement:
The Obama Administration ... sold perhaps the best located and finest embassy in London for “peanuts,” only to build a new one in an off location for 1.2 billion dollars.
sold perhaps the best located and finest embassy in London
The old embassy was not considered secure enough to handle the increasing amount of threats that it has been getting, and its neighbors felt threatened, as Shadur explained in his answer. Adding to this contentiousness, the Duke of Westminster owns the land the old embassy was located on, and America tends to prefer to own the land its embassies are on.
It is also of "special architectural interest" for its design and detail. Renovating it would have been difficult and any serious alterations would have ruined its appearance and its value. Furthermore, renovations would have been extremely expensive and ineffective. According to Lydia Muniz, director of the Bureau of Overseas Building Operations at the State Department, renovations would have cost $730 million and the embassy still would not have had state-of-the-art security.
sold.. for "peanuts"
Local British media reported that the old embassy was sold for 500 million pounds (the amount was not officially disclosed). On December 31st, 2009 this was equivalent to 806,700,000 U.S. dollars. The new embassy was funded entirely by sales of property in London, and this figure would account for most of the price of the new embassy, which has a variety of state of the art security features.
only to build a new one in an off location
We have already established that the embassy needed to be changed to a location that did not threaten its neighbors, and SQB (the OP) says himself that this location is one in which other embassies are moving. In addition to this, as David Richerby notes in a comment below, "this 'off' location is only two miles away from the original one ... on the south bank of the Thames."
for 1.2 billion dollars
The price of the embassy was actually 1 billion dollars.
In short, renovations on the old facility would have cost $730 million dollars vs the 1 billion dollars for the new facility. The old facility is thought to have been sold for 500 million pounds (and we didn't own the land so that is just for the facility itself), roughly equivalent back then to 809 million dollars, and we would not have been able to sell it for anything, since we would still be using it.
So for 191 million dollars (net) we got a state-of-the-art facility in a less contentious area (the point of an embassy being diplomacy, this is important) that other embassies are moving to, on land that we actually own, instead of spending 730 million dollars for a facility that was still not as secure as possible and added threat to its neighbors due to its location.