Steve & Irina are both correct in the fact that if you don't remove contingencies per the agreed to timeline in the purchase contract then there is a process to cancel the agreement (i.e. notice to perform.... which typically gives the buyer 24 - 48 hours to make good on the contract).
However, I do want to stress that a nycancellation comes from the SELLER not the agent. Ensure that you have received the proper notice to perform signed by the seller. The agent should not have put the property back in the MLS prior to the proper measures being taken to effectively cancel the sale.... unless they include that any offer would be considered "pending cancellation of the current escrow".
Best of luck....
San Diego RE Specialist
Residential Sales and Appraisals
First, ask your agent to see if the Seller would still accept a new offer from you once the appraisal comes in. If not, done deal; however, in this market I have to think they would, especially knowing that you can now close escrow without delay.
Second, the fact they lowered the price now works in your favor. Once the appraisal comes in you will know exactly where your offer has to land in order for the FHA loan to go through. I'm also assuming that all your inspections have already been completed and there are no health or safety issues to contend with.
Third, by attempting to get back in the good graces of the seller you will maintain your 3% minimum down requirement for the FHA loan, which is now 3.5% in 2009; however, since the FHA case number and property has not changed (confirm with your FHA lender).
I hope this is possible for you..
Best Regards, Steve
If this is the case, then yes... the listing agent is totally in his or her right to do this to protect the seller.
You can see if the appraisal can be expedited and try to negotiate for more time.