That will cause a sellers market due to multiple bids over bids and properties now appraising back on positives. 

Off the cuff, FHA can be difficult with appraisals, sellers willingness, self-sufficiency test, life time PMI, & FHA premium.

IF you're in a HCOL area or HCOL region in a normal area, definitely add a bathroom it's a huge appraisal add and game changer. 10-15 years from now when you sell, nobody wants a 3/1 now and won't then. 3/1s stay sticky in any market I'm in, I'll buy distressed and add 1-2 bathrooms and get a huge return on just that. 

And in the first 4 to 6 months he will net over 100k on a 20k investment And I make my normal funding fee's which are higher than HML fees  but I dont do appraisals and i have zero junk fees..

No one is gonna pay her more than its worth, much less appraise for.

You are likely out of your inspection period and the ways out for you are appraisal and financing contingencies.

if you think there is more equity there you could have an appraisal done… but some lenders will not re-evaluate a recent purchase for a set period of time… they will just stick with the old purchase price as its value (varies by lender) unless you can show significant improvements you did to justify a higher price. 

But in general, the toughest thing now is the appraisal coming in lower.

I still owe about $238k on the house (I am paying around $2k per month including escrow) and the bank says it appraise for $850-900k so plenty of equity to borrow.

I've seen appraisers reduce the appraised value by the seller credit.