Goose,
Your out, for this contract would indeed be the cost of repair contingency, based on the the estimate your contractor gave. However, the contract also clearly states that it takes a signature from both the buyer and the seller to get your earnest money back. It is a very sticky situation, but a situation that your buyers agent should have spelled out to you very clearly. There is always the possiblity of of a dispute over earnest money!!
Many times the earnest money will remain in a trust account while the dispute is arbitrated. If that does not happen, the Earnest Money may eventually be turned over to the State.
Another possibility is splitting the Earnest money with the Seller, cut your losses and get out of this, or as the others say small claims court.
Good Luck, and hopefully you have a great Buyers Agent to represent you in this difficult time. - Mon Jun 1 2009, 17:39