While the matter is still unresolved, i.e. either the buyer or the seller has not signed the cancellation instructions, a cloud on the clear title of the property exists, which is the reason there are penalties in a contract for non perfomance and failure to comply with cancellation instructions when they are valid. Some buyers feel that they can "tie up a property" by refusing to perform or sign cancellation agreements, and some sellers refuse to sign cancellation instructions releasing the due deposit back to the buyer - however, both would do so at their own peril and risk of damages.
If the seller is refusing to release your deposit, you may need to speak with an attorney. It may be wise to file a notice lien on the property so that the seller could not, for example, open an escrow elsewhere and consummate a sale without any public record stating there is a cloud on title should this continue.
Good luck - and talk with an attorney sooner than later -
And as I understand it, yes, the seller can take another offer if the buyer wants out. But, if you had te house taken off the market for some time and you caused the seller to now sell the house for less to another person., the deposit may be in question.
Again that is a thought of what could be in line.. You should contact an attorney regarding the return of the deposit funds
If a cancellation of contract form has been signed by both parties, then the seller can begin marketing the property again. The cancellation of contract has specific items related to the release of the deposit so this should be the tool used to direct action regarding the deposit as well.
Hope that helps.