-The moral issue you could run into is if your agent brought you the deal and you cut them out to submit an offer directly to the listing agent then you burn a bridge to save a couple grand-Too often people focus on the small commission paid to the realtor as an opportunity to cut costs when in reality the long term relationship with a good agent will bring you far more value.

I broke some of my own personal/professional rules, that is one of the reason that I'm in this predicament.

However I have a predicament I live in NYC, one of the most expensive real estate market in USA.

If you are comfortable with a property a plane ride away then your predicament is just a math problem to determine where your money/ equity earns a better return. 

The problem with this listing was that is was an $800,000 home on a street of shacks.It took almost six months to rent that house, and it only happened after the landlord finally agreed to lower the price pretty substantially.The moral of the story is that it's better to be the little shack on a street of $800,000 homes than the $800,000 home on a street of little shacks.

What do you guys think and what would be the moral and ethical thing to do is kinda where my thinking is on it all?

The numbers didn't work for me on this one so I am still searching.The moral of the story is that it is totally possible to do this real estate thing in a big way. 

I have a moral contemplation that I have been struggling with.

It ended up working out.So I guess the morale of the story is if you're serious about house hacking using FHA, don't get your hopes too high in OC...you may have to be willing to expand your search radius significantly to find something that would work.Oh and another thing.

They are in a predicament that requires them to sell their house as fast as possible.