RR I've seen underwriters condition for that, and it's your loan officer's screw-up for asking anything of you...

I looked into a property being sold by fannie mae (through homeopath.com), the property is in pretty good condition all i would need to do really is remove the carpet and tile and install new tile throughout the house.  

With regards to ARV for a refi, like @Scott Schultz noted, appraisers (and home inspectors for that matter) typically just observe what they see and appraise the home based on its present condition. 

A couple of years ago we were able to snatch up foreclosures in mint condition, but now it's a bit more difficult.

Living room has an offwhite berber carpet that is in like new condition and looks very nice with the exception of 2 places where there are stains.

My husband is very allergic to cats and I worry that since he'll be doing a lot of the maintenance that this will negatively impact his health (I should also mention we would be house hacking a MFH in metro Denver).  

I'm a full-time Realtor here on Maui, from Seattle, and I tell all my clients that my goal is to educate them on our values and provide as much information as I can about the property, neighborhood, historical sales data, current market conditions, etc.  

Using comparable sold properties with similar condition to your end product, within a 1/2 mile (sometimes a little further), less than 6 months old, within 20% of square footage, not crossing major boundaries ( high ways, school districts, city lines, etc).

FHA is just a guarantee that, provided certain conditions are met, can be placed on the loan to increase a bank's willingness to lend.  

Generally, in my experience, hard money lenders only loan 75-80% of the LTV in as-is condition.