We also have a separate emergency fund for ourselves which includes 6 months PITI + 6 months maintenance (we have a coop for primary residence) + 6 months spending money (with no lifestyle reduction).

If you have to come back after the fact and get a reduction you can.  

In terms of home appraisal, what if the appraised value comes out to be lower but the seller agrees to the full price reduction?

In order to meet the debt free deadline at the end of 5 years of the ARM you'd have to reallocate huge amounts of dollars to principal reduction and another cost not factored in is the opportunity cost of that money being contributed to real estate equity which is very illiquid.

I've adopted a standard method for handling buyer's inspections.If they come up with anything they would like fixed/changed I negotiate a reduction in price to cover it.I learned that after I spend time and money addressing their concerns they can still bail based solely on their subjective view.This way I don't have to worry about it, no re inspection is necessary, and the sale is it delayed.A lot of the time the buyer won't even spend a dime on the inspection concerns.Just like you don't have to spend the insurance company check on your slightly dented fender.

It depends on what kind of deals I can find and what direction my conversations with those more experienced leads me.Open to any suggestions on debt reduction vs investment as far as which should I concentrate on first. 

What you're realtors offering you is a reduction in the commission from 6% to 5% since you found the buyer.  

The sellers would have a decent price reduction each month, even switched agents..... 

And by moving in you will get a proration tax free in a bit of time.I don't see how you can create a good scenario that involves a reduction of debt on that 2nd property without a sizable tax event. 

State the lower price with the balance due from the seller or crediting him with him making a note to you.You could pay the interest and he pays the principle reduction say for 90 days or what ever you agree to.You can also simply contract for the work to be done.