Yes, that could be a problem. Presumably the appraisal considered the condition of the house. If not, it may make sense to bring these issues to the attention of the appraiser and see if he or she might make an adjustment. If not, the difference between what the grandchild pays and the fair market value may be considered a gift by your mother-in-law and cause a period of ineligibility for benefits. There are, however, ways to deal with this. I strongly recommend that you consult with a local elder law attorney to figure out the best approach where your mother-in-law lives.
For more on Medicaid's asset transfer rules, click here.