"+ gift of equity $17,000"

What a coincidence! It's not as if the "selling" price is manipulated from FMV, while also giving someone the exact amount of the gift exclusion as the difference. There's also an included loss amount to make the math work? It certainly does seem like, "What they qualify for mortgage + the gift limit" and ignoring FMV.

We know what @Skylane is smelling.