Newsflash: Appraisal $25k below listing price

We found a house in our neighborhood listed for $329,900. We didn’t immediately fall in love with it, but after viewing another house the following day, we realized how much we loved it and went back to it and put in an offer. Sellers accepted and everything was smooth sailing until yesterday afternoon when the appraisal came in at $304,000, a $25,900 difference. There aren’t a lot of comps in the area, and even our realtor is surprised how low the appraisal came in at. The sellers have done a lot to the home and it really is as up to snuff as possible, we wouldn’t have to do much. They’ve been there 36 years, so anything they get at this point I’d assume is profit. It’s also FSBO, but I wish they had a realtor who could offer guidance. The lowest they came down was $320,000 and are standing firm. We would only have $53 PMI/month til our current house sells. We just feel stuck. In this market, with a 7.35% interest rate, we feel like we shouldn’t pay above appraisal. Just have to decide if it’s worth more than that to us. Based on the facts, and taking out emotion, just wondering what others would do.