Joe's brother-in-law buying Joe's house at a short sale would be a huge red flag for fraud.I think the biggest arrow in your quiver is #1, and your most probable path to success is to order a fresh appraisal with a fresh opinion of value, and once it comes back go to your (or the end-lender's) appraisal department (not the AMC, the lender's internal folks) and argue that the new appraisal is more credible than the previous one because of #1 ("if the appraiser didn't even go to the comps for a quick drive-by photo, who knows what else he didn't even actually do?")

Using that rate may be considered alright or it may be a little low and raise a red flag somewhere.

I think its three green houses can be traded up for one Red Hotel/Apartment.  

So I looked for second opinion but none of the contractors I spoke to were interested in taking a look without charging me up front about $350 dollars for the visit.

I am set on the existing red going to sage green to match the existing house.  

This is your red flag!

the quote above about the 650 is red flag for sure and usually a very good predictor of a pump and dump due diligence or up front fee  scheme.... 

I would absolutely follow up with @Zach Mitchell as well who so kindly offered to look at your property and who might have a referral or two to suggest.The fact that they brought out the "we have doctors and lawyers..." line is a huge red flag to me.

We saw some small crack in the walls of a house we are interested in, but regular home inspection doesn't call out any red flags.

Red flags all over the place.