The sellers finally signed the purchase sale agreement but it has now brought up more questions.

The original asking price was for $199K We offered $210K to assure we'd get it. The signed paperwork has the listing agent changing the price from $210K back down to $199K and the listing agent explains this as "there's no way that FHA loan will be approved to add the third party fee. The buyer will pay separate the negotiation fee of $1,695.00".

I don't understand that at all. Yes we knew there was a third party fee involved, but why has that constituted the price to go down $10,000 from what we offered? We are buying with an FHA loan and it says in the agreement that seller (which I assume is sellers lender) will pay up to 3% of the closing costs. Are they taking into account that? That still wouldn't add up to $10,000 less. So are we paying remaining closing costs and having our mortgage figured out from the $199K price and not the $210K price??