The seller must be informed that the house did not appraise via your agent or attorney. Either (1) the seller must come down to the appraised value, (2) you pay 25K out of pocket expense for the home as the overage is not mortgageable or (4) the contract is terminated. You, and all parties involved including the agents, would have/should have signed an FHA Amendatory clause basically stating that if the house does not appraise neither party is forced to either sell or buy. How likely will be close will depend on the option acted on. Good luck.
Janet Nation, CBR
Sailing Home Realty
Licensed Real Estate Salesperson