Well, yeah the Seller can do what ever they want...no really smart if they lowered the asking price under what you offered them BUT yeah they can do what ever they want to sell their home. The only reason why they are most likely lowering the price is they NEED TO SELL NOW. They may be concerned with your current home selling...and they are afraid to "keep waiting" for your home to sell as they need to get out of a situation on their end? So, the only way for you to get out of the agreement at a higher price would be for you to wait until your condition runs out and make another offer at a lower price. If you wanted to know what you can do to get the lower price...I would image that would be your next question.
I hope this helps you.