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FextraBot

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Alternate path doesn't work. I've got the sword from Owen, picking any option once coming out results in the Magister initial a fight.
it's because youre not having the person who has the sword be the person whom they're initiating conversation with. make sure ONLY that one person comes up and it'll give the dialog to hand over the sword.
What's up with Owen's sword?
Make sure you break off whomever HAS the sword from the party and go back topside with ONLY that person to ensure the magisters talk to them specifically. If they talk to anyone else, you wont have the option to NOT fight them because you wont have the option to give them the sword.
Alternate path does work, but the problem is that as soon as you kill one Magister, your journal updates with "The Magisters are dead", so Owen leaves the basement and joins the fight. Since he has no armor, this means he will get killed pretty quickly, so you'll need to be prepared to either take the other magisters out fast or immediately buff his physical/magical armors.

Also, be careful not to let the fight spill too close to the magisters by the gate, or they'll also aggro. As long as you don't aggro them during the fight, they won't aggro after you kill the group by the house using the alternate path.

I had to retry this fight a couple of times to keep Owen alive and the gate magisters unaggroed.

linkwtf

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This might be an addendum to the Alternate path.

Using a SCHOLAR character initiate convo with owen.
Tell him " You have an idea...
(not sure if something can be done differently with the sword)
Follow SCHOLAR convo path.
Tell him to wait here...
As soon as you leave the magisters will confront you and both options end in a fight.
Owen will come fight with you because he is an idiot.
After the fight the Magisters at the gate did not aggro me so I assume that it has not turned everyone against me.
The quest log closes out with [The man has survived his encounter with the Magisters, but his home hasn't fared well.]

This happened to me too, no unchanging required
There is an easier alternative way if you choose to save Owen:

Before going down to the basement, teleport the wandering Magister Patrolman far away from the scene and finish him unseen.

Therefore after you rescue Owen and start fighting the besieging magisters, the ones at the gate (and the rest of the Blackpits) won't be triggered hostile.
This worked for me. All the Magisters appeared Red on the minimap during the fight, but after the fight they returned to yellow. Weird.
Nevermind, it didn't work. They still became hostile when I approached. Maybe it was because I retreated to the top of the oil rig thing during the fight and that was close enough to them....I didn't think it was that close, but maybe it was.
Saving and loading will sometimes allow you to talk to the other Magisters after the fight. Maybe it depends on who they see first from your party.
Owen came up after I killed the magisters, asked about the murders of the magisters, I confessed, and he turned aggro and I killed him.
i tried casting rain 1 too many times on the flaming house and FML, it set owen hostile. time to kill yet another npc.
OK! Here's how to complete the quest peacefully, save Owen and don't fight the magisters (unless you want to).

Get the sword, and make sure you un-chain the character who has the sword and send them out of the cellar ALONE. You need to show them the sword to prove you killed Owen. The Magisters will accept that. When traveling with my group chained together, they would always prompt dialogue with Beast, who didn't have the sword and so it didn't work. It won't let you use "Magic Hands" to show the black sword.
HOWEVER, Owen never came out because the Magisters lingered.
Yep, to finish the quest you still have to kill the Magisters. Otherwise, Owen will not come out. This is one of those weird quests where you can't get everything you want. It would have been a nice touch if you got credit for putting out the fire, at least.