NEED HELP on a Non-Arms Length Sale

[Alex Freelove]

I am purchasing a house from a friend of a friend not through the MLS and with no realtors. We are in escrow now. We made the deal at $325k and the seller covers $7k in closing costs. The appraisal came back with a value of $340k. On the Appraisal Report it stated "Arms length sale; Typical CA RPA, with a purchase price of $325,000, and a contract date of 12/31/2016. There are no realtors involved and this is a non arms length sale due to being between personal friends per the seller."

Should I be concerned that this is listed as a non-arms length sale? Am I able to contest the Appraisal Report just about the "arms length status?" Will this cause me, the buyer to have to pay the IRS more? I am also using an FHA loan. What should I do in this scenario?