If the decrease is sold price per square foot is really declining then I would focus on doing WHATEVER it takes to sell. That means doing whatever you can to work with the buyer.
What does your Realtor say?
Well of course you can do anything you want to do it is your house.
Wouldn't it be better to price your home right by using a cma? If you haven't already, get yourself an agent find out where on the market your home would place price wise if that amount is miles apart from the appraisal then it would be best to try and price your home no more then 20% higher then your appraisal. This will allow room for negotiations between you and a buyer and falls into the 20% down most loans are requiring now.
Don't jump the gun on this one. Your buyer may not be concerned, if the appraisal is close to the sales price. Plus, you can always order another appraisal. Another thing to do is have your agent challenge the appraisal with comps that he/she provides to the appraisal company.
There might come the need to lower the sale price, but try to hang onto as much of the sales price as you can. Remember that the bank will only loan up to the appraised value, but most buyers are putting enough down to cover the difference.
If the property does not appraise, then the seller can come down in price to meet the appraised value. Sometimes contracts need to be completely re-negotiated at this point. It all depends on what the buyer and the seller wish to do.
Your realtor and attorney can best answer your question as they know the players. But, as an educated third party I can tell you that chances are, yes, you can drop the price to Match the appraisal. Your buyers will love you! Good Luck! Jennifer