I'm a fairly new player in the RE scene, but can tell you a few things out of my personal experience.

I figured I have nothing to lose but time, and by seeing my great work ethic, I may be able to establish a great relationship with the investor and could grow into an eventual partner.

Legally, she still has ownership interest in the property and could sue to claim it, and you would probably lose.

I need to know if I have any options here other than to risk losing my 3% earnest money deposit and the most amazing house for my family.My wife and I made an offer on a bigger house and we were very fortunate that the buyer picked us.  

They are writing into their contracts that they will cover up to $30,000 of the difference between appraisal and contract amount if the house does not appraise.AND THEY ARE LOSING!

I think with family the main goal should be to not lose money, so be prepared to "waste" your time if the deal is a break-even deal. 

If you hold out for the long term the average might be good but it you succumb to the herd's and get scared to sell off you can lose a bunch of money.What kind of doctor makes a difference with how much they make.

So, its losing its value as you hold it.  

Get familiar with the way the market ebbs and flows, know the local players and make sure you become a household name for your niche if you decide to do this full time.It is my personal opinion that you should be able to figure out if a deal is worth calling the seller's agent after 45 seconds of spreadsheet work, not 13 pages.

I figured my heart was in the right place, but as a more novice investor, you always want validation from a more experienced player in the game.