To add to Don's comments... do you not want to buy this home anymore, and do you want to get your down payment/earnest money back?
Since you were using an FHA loan, did both you and the seller sign the "FHA Amendatory Clause"?
"It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise unless the purchaser has been given in accordance with HUD/FHA or VA requirements a written statement by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement lender setting forth the appraised value of the property of not less than $YOUR SALES PRICE. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation..."
If you did, then even with a financing and appraisal contingency waived, I've seen my own borrowers be able to get their earnest money deposit back.
Were they an exempt entity from having to sign one? If not, then I'd have your real estate agent contact the seller's attorney to get your earnest money back, if they refuse, I'd make sure to have this information on hand.
Exempt entities: http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr
If you still want to buy it, the seller has no obligation to sell it to you for the appraised value unless you wrote a special clause like that into your purchase contract (which I think any seller would be silly to sign something like that), and so the only way the price of the home is going to change is if both you and the seller agree on a new price.
To help out with that, I would recommend you go over the appraisal first to make sure it's as accurate as possible, seeing why the comparables used on the appraisal were not the same as the ones you and your agent looked at when you made your offer, or if they were the same comparables then why didn't they "compare" like you anticipated they would. Your loan officer & real estate agent can help decipher the information. If there seems to be some inconsistencies with the appraisal your loan officer can prepare a revision request for the appraiser to review and consider, and either make the appropriate changes or explain in writing why those revisions won't be warranted.
With that process already taken care of, I think you'll have a better chance at negotiating a new lower sales price.
But putting it back on the market for $169k tells me they are sending you and whoever did your financing a strong message that they are probably not willing to negotiate.