Thanks again for the replies. I guess the search continues.
This isn't legal advice so please don't take it as such - this is simply my experience with what you are talking about.
It sounds to me like the seller signed the purchase agreement ("We all signed the agreement..."). My answer will be predicated on that premise - in the event that they did not sign your offer - there really is nothing you can do. Verbal agreements don't count in real estate and while ethicaly they should have to preform - legaly there is no basis.
If they did in fact sign the offer but make a change and sent it back with initials on it then the ball was in your court. The timing of things becomes very important at this point - the seller can timely withdraw their purchase agreement by comunicating their withdrawl to you or your agent prior to your initialing and sending back the PA. In other words if you sent them the fully signed and initialed Purchase Agreement and then they called you and said that they had another offer - that is too late for them. If however, the seller informed you any time prior to receiving your initials on the change you are out of luck.
At the end of the day however they will need your signatures on a cancelation of purchase agreement in order to fully execute the other purchase agreement. You have the ability to make their life difficult at this point by refusing to sign the cancelation. While I would definitely talk to your agent and almost certainly your attorney before doing this - it is an option for you. In essence you will be tying them up so that they can't sell the house to someone else but I don't recommend this lightly - be very careful with this course.
Lets talk the real world now. If they didn't actually sign the PA - your out. If they signed it and timely withdrew their acceptance - your out. If they signed it and they didn't timely withdraw and you choose not to sign the Cancellation - you will need to make the same offer as the new offer for any hope of still getting the house. If you choose to pursue your rights in court you will want to go after something called "specific performance." This should only be done with the proper legal advice of an attorney - but can only take place if you had a fully executed deal.
At the end of the day my gut says that you should move on. You can pursue some of the options above, but they are all long shots and will only work if you are dealing with a consumer. If by chance you are working with a bank - forget everything I just said and move on - they will not budge and they would be happy to battle you in court which won't be worth your time.
Good luck and be sure to post back if you have any other questions.
Normally, when there is a portion of the purchase agreement that has not yet been formally agreed to, the purchase agreement cannot be considered "fully executed". In the face of the lace of a fully executed purchase agreement, you cannot assume you had a deal in any other way than verbally, which, unfortunately, doesn't officially count.
I would suggest checking with an attorney if you feel so led. What does your agent say? Did you have an agent representing your best interests? Even with your own agent, the buyer's agent has no control over the actions of the sellers and if they were not operating in good faith, it's unfortunate but not necessarily illegal.
Sorry this happened to you! It shouldn't be that tragic!