Do I have grounds to receive the earnest money from a buyer that cancelled their mutually accepted offer?

In California, deposits must be refunded. Option payments and liquidated damages do not need to be refunded. You need to carefully review your contract to see which "flavor" of earnest money you have in your contract. As a general rule, the deposit is not worth fighting over, unless you have actually lost money for some reason, such as a severe drop in the market. Right now, in most Bay Area markets, prices are going up. So your next buyer is probably going to pay you more. If the buyers made a hole in the wall or floor in order to inspect for dry rot, then you can require them to repair the hole and restore the wall or floor to the same condition it was in before they made the hole. If someone stepped on the floor or pressed on the wall, to check whether it was firm, and it was so badly rotten that the person's foot or hand went through, that's not their fault. If the hole is the buyers' fault, then you can refuse to authorize release of the deposit until they either repair the hole or agree on an amount that will be paid to you from the deposit to repair the hole. You cannot require the buyer to pay for repairing the dry rot. You now have the obligation to affirmatively disclose the dry rot to anyone who offers to buy the property. If your home is not being marketed as a fixer-upper, then your broker might recommend repairing the dry rot before sellling, in order to get the best price. This is not the responsibility of your former buyer. If you had not disclosed the dry rot and faulty AC, then those are valid grounds for the buyer to cancel the contract. Most contracts include an inspection contingency. If that contingency had not been satisfied or waived, then the buyer could cancel the contract. If you appreciate this free advice, please remember to refer me to any friends or acquaintances who need a lawyer. Referrals are still our best source of new business. Do you have a revocable living trust to protect your heirs against probate? Probate takes forever, is expensive, and is annoying. Do your family a favor. Set up a trust, and put all your property, especially any real property, into the trust. Since it is revocable, you can change it, add to it, take property out of it, or even cancel it completely, at any time. We set up such trusts, provide a pour-over will as a back-up for any property that does not make it into the trust, provide you with blank durable powers of attorney for health care and financial decisions, in case you become incapable of making such decisions while still alive, and convey one piece of real property to the trust, usually the family home, for $1500.00. If you would like to hire me to do this, let me know, and I'll send you a list of the information I need. Dana Sack