Depending on the amount of earnest money at risk, and if you have concerns about your realtor's advice, then suggest you consult with a real estate attorney who can review your your contract and bank addendum and help you understand your options. Also it's unlikely the bank has the earnest money. It's usually held by a title company until any disputes are resolved.

Thanks for that. I did ask my realtor to submit the three day request and they responded that it was too expensive for them to take care of the unpermitted room and that because the contract was "as is" they cannot guarantee that I will get my earnest money back. They said to do a Home Path Mortgage instead of FHA because they wont stipulate anything about the permit and my realtor agrees. What concerns me about this is that I want to extend the laundry room on the carport to connect to the house itself and when I do that wont the city say something about the unpermitted addition to me then? It feels as though the realtor doesnt have my best interest in mind here but I dont know how all this works and I dont want to accuse cuz he's been great so far...but this whole mess scares me. They wont fix the problem so that i get fha approval but wont give me back the earnest and is almost forcing me to go with Home Path (and isnt that Fannie Mae? Arent they the ones with all the issues? Is this really the path I should take?) So confused and frustrated :(

If you were attempting to buy the house with an FHA loan; the contract was contingent on the FHA appraisal. If you can't get an approval from the appraiser; the standard language in all FHA contracts specifies that you can get your earnest money back. If the seller is not responding; you have the right to give the seller a written 3 day demand to respond, after which, you should be able to cancel the contract and be entitled to the return of your earnest money. If you are doing this without a Realtor and you did not use a title company to hold your earnest money, then you may need a real estate attorney to help you get your money back. If you used the standard Arizona contract, the language on this is very clear. If you used a different contract, there may be other language, but the Arizona courts tend to treat the use of a non-standard real estate contract as a deceptive practice.