Bernard Gibbons, J. Rockcliff Realtors
DRE License # 01331583
Phone (925) 997-1585 - firstname.lastname@example.org
Generally speaking, when a property appraises too low, both sides go back to the table and try to negotiate a deal that will appraise. If the sellers are unwilling to do that and they woin't give back your depots, you might need to go to mediation. Your agent should be able to set that up, or you go to your local realtor association for referrals to mediators.
Without seeing the contracct, it's hard to know exactly what you are dealing with...if it's after your 17 day inpsection period and you did remove all the contingenices, the sellers may have a claim to some portion of the deposit.
Take a good look at your contract and what it says...this might help you figure out what steps are most appropriate now...you might even have an attorney look at it.
And when the appraisal came in lower than your offer, did you and your agent submit a request to reduce the price accordingly?
Did the seller issue a notice to perform? Did seller issue cancellation with instructions on how to release the deposit. WHAT did you receive and/or sign?
Better get your agent's broker involved pronto, and ask to speak to a real estate attorney representing their agency first before you hire your own.
Look closely in the terms of your contract, particularly the mediation/arbitration, right of seller/buyer to cancel. Make sure you have all your paperwork handy.
As a consolation to you: seller can't get his hands on that deposit until you sign cancellation and release of deposit paperwork.