Home builders keeping EMD after house doesn't FHA appraise?

I need some clarification because unless I'm completely nuts, I don't get why this new home builder is doing this! I have some newly aquired buyers that are trying to get out of a contract with a local Vegas builder and get their $5k EMD back. The house they are buying FHA appraised $28k under contract price. The buyers asked them if they would reduce and the builder basically said: 1. The appraiser did not do his job. 2. They want to wait until other homes in escrow close to see what they close at. 3. Would not give them a timeframe/new close date.

After a couple of weeks, these buyers sought me out to start searching resale homes instead and want to cancel the contract based on FHA appraisal clause/amendatory clause that the builder signed, the fact that they are technically out of escrow- the contract stated close in 30 days (which has past plus a couple weeks) and the sales agents did not have them sign any sort of extension stating when they would close.

The buyers have on more than one occasion mentioned cancelling to the builder and they were told EMD would be kept for them cancelling because "they were still in negotiations". Obviously my clients didn't see it that way, there is no negotiation! You either work with the new appraisal price or cancel the contract.

I contacted title on their behalf to inform them of these circumstances and for the file to go straight to title's legal dept upon cancelation.

Am I missing anything here on why the builder seems to think they are entitled to keep EMD AND keep these people in limbo for who knows how long after escrow has expired? Please, i would love anyones input so I can give them good info to go back to the builder with. Thanks!