Bought a house and now regret it. How to pull out?

[Tyler D.]

A few weeks ago I purchased a SFH to use as my first rental. It had great pictures, and both agents and the inspector made it seem like a deal.

I flew out to see it and... It is not what I expected. The seller must have been a great photographer because it is not in the amazing condition it appeared to be.

Currently I have it on the market looking for a renter. Now I want to just put it up for sale and cut my losses. I want to make sure it's in my legal rights to do this, as several prospective tenants paid an application fee. 

Also, I don't want to scare away any buyers who would look at the property selling just weeks after it was sold to me. It had quite a few offers when I bought it (there was a bidding war), so I don't think I'll have an issue reselling it so long as I avoid putting up red flags. What's the best way to handle this situation?