Thanks for the feedback. I actually spoke with this appraiser and had my electrician there as well and even though we pointed out in the code where I was legal, he would not back down. When I asked to see it in writing and why FHA code would supercede that of national codes, he simply went on to spout some BS about how a kid could be playing around in a basement and spear a knife thru the wire if it is not in conduit, to which I replied, well, if it is run thru the joists, can't he do the same and doesn't it make it easier for him to jump up and grab it!
In the end, it boils down to this guy needing to make a statement and if I push too far on this he will just ding me on some other BS item that will likely cost me twice as much. Just wanted to make sure that I was not off base though in my thinking and to see what others had experienced. Funny, he never said a word about the electric box itself, but the home inspector did.
Have to pick and choose your battles as it does me no good to win the battle but lose the war.