Hmmm.....very unusual that a 203K loan got denied because of the house itself. You can buy just about anything with a 203K. The other comment is likely correct, if you are denied for a 203K or a 203B with one lender you'll probably be denied with the next. Again, whether you get your money back depends on how the contract was written. Normally if you can't get financing you get your earnest $$ back. However, you also usually need to show that you made a "good faith" effort to get financing, and that you aren't just using the financing contingency to get out of the contract.
FYI, you shouldn't be using the same Realtor as the seller. Too late for that but just for future reference....