i have run into something similar. my buyer cancelled on a condo w. katrina damage because after a month there were still no utilities. Could not do inspection or appraisal in this condition. he cancelled in good faith on this basis but listing agent tried to claim she was owed commission. My broker fought & got deposit returned,but do you think I will ever deal with this agent again? NO NO AND NO!! you should have a cancellation clause re: unacceptable inspection or failure to appraise and this allows you to walk with no consequences. if this is in place,you are in good shape. Did the listing agent disclose the relationship w. the seller? Even if you are in the right,and it seems you are,some agents are greedy and will try to play these scam games. i suggest you get your brokerage to go to bat for you as mine did. And rest assured that these agents who play these greed games will eventually be run out of business because reputable agents will not deal with them.