Honestly, I would LOVE a dog. My DC would LOVE a dog. It is a constant topic of conversation in our house at the moment, as circumstances have changed to allow it to be a possibility now.
But it is such a huge, life-long commitment to another living thing, and will change/limit where and what you can do and go as a family. You can't just give them up easily if it doesn't work out. You will pay a fortune for them, so you need to be able to afford it, and if your DD left home at 18, say, she wouldn't be able to afford that herself.
So at the moment, even though on paper I could have a puppy, I am still saying no. Because it is the responsible thing to do, until I am sure we can commit to an animal (and all it's unpredictable needs) as a family.
I'm really sorry about the deposit and for your DD's feelings. I was that kid who wanted a dog so badly too, I understand. Hopefully if you back out now and the breeder is responsible/has a waiting list/is sympathetic they might be able to give your DD's dad part of his deposit back.