YES!! We know exactly how you feel. In our case the house was off by like 1,200sq ft. I noticed it through the appraisal and my raltor contacted the sellers realtor and it turned out that she did an even sloppier job with listing the size as she did with so many ther things. However, even after we showed her the HUGE error, she never fixed it on teh listing. We too did nto end up buying the house, and the main reason is because of some even shader dealings the realtor did.
But the good news is, we ended up finding a MUCH BETTER and even bigger house that we really LOVE and with about 14.6 extra acres and it only cost us like 42K more. The house we bought was also built in 1993 vs like 1910. The first house would have cost us over 150k to update it like we planned to do, and this house although has cost us over 100K, all but like 20K has been cosmetic. and for our own liking. We have also increased the value of the house quite a bit. Not sure how much yet because we are actually finishing the current remodel and then refinancing it.
According to zillow (yes we know they are not accurate but they are in the ball park), if we sold it today (just 2.5 years later), not only would we get all of our remodel investment back but we would also walk with between $100-150K.
Had we bought the other house, we MIGHT have broken even.
So to you and your family work_n_progress, we would say to you, if a deal starts off WRONG or UNFAIR, it almost never gets any better and when it is a big item like a house, the STING lasts a long time or even until you sell the house. So look at this as a blessing.
A side note: looking back, we should have made the realtor pay us back for the appraisal because she was the one who listed it wrong and the amount was substantial Heck, even when she was made aware of it she did NEVER fixed it. You may want to look into having the realtor or even home owner pay for the gross error.
If it was 10, 20, 50 or even 100sq ft difference you say, okay it could happen (still sucks), but 200-300 or in our case 1200 sq ft, this is just negligent by the at least the realtor and maybe even the home owner.
Anyway, good luck to you and with a little more paitence, I am sure you guys will find an even BETTER house just like we did. 
That is so AWESOME!!! I am so happy for you and yoru family. 
I hope others that are working hard to fix their credit to buy a house do not feel that they have to take a deal that is not really a "good deal" feeling that they need to take it or they will get nothing, and see from yours our own experience that an actual GOOD DEAL will happen if they are just paitent.
@Anonymous wrote:
Thanks for the thoughtful reply Bug101. You are right in fact I am signing a contract on a new build today. Builder trying to dump inventory at end of year and took 10% off of the appraisal value. Ill put 10% down and day 1 Ill have 20% equity. It really did work out. I was just suprised that people are so sloppy in their job. I thought about small claims against owner and realtor but after discussing with a lot of people most people think thats the whole point of inspection and appraisal. Its part of due diligence as buyer and expected cost of doing business. Still stings but You are right it would probably only go downhill from there.
^^^this is so true.
You do your due diligence because you need to know the status/condition of the property before you purchase it. Relying on the seller's disclosure or Realtor's info is not a good idea. It is best to have a factual report - just like you got, so you can weigh the pros and cons and decide to keep the deal or cancel.
Personally, I am glad you canceled. That difference in square footage is huge. And, it looks like you got a better deal! Congrats