I have seen this before, it is allowed on the HUD and 3% is common here in Chicago. For my short sale listings, I know have my attorney do the negotiating with the lender and there is no fee to the buyer. I have seen buyers walk over the 3% fee.
I would ask the listing agent specifically who or what company will negotiate the short sale .Very often it's the listing agent's choice and It could be an attorney or third party negotiator in addition to an attorney overlooking the transaction. Usually this cost is being paid by the seller/bank and should be put on the initial HUD that's being send out to the bank all together with the first offer. Bank can come back and ask to alter this fee and other items on the HUD, transfer fees,sale price,etc. but usually it's approved just like commissions for agents. What I'm trying to say that you should try to negotiate this item up front.
Therefore, the negotiator, DESERVES TO BE COMPENSATED, but is often a victim of providing services that are never paid for.
The average discount on short sales is above 20%. If the buyer refuses to pay 3% to get a 17% savings, perhaps the buyer needs to be reminded that this is all made possible through the short sale negotiator. This is a very normal cost for a buyer(investor). It is allowed on the HUD-1 but subject to approval from the lender.
Another point to consider is that the Lender typically cuts the fees on the HUD anyway to ensure that it receives the highest net. Starting at 3% maybe a negotiation strategy to eventually land at 1.5% or so.
I On Real Estate & Investments
Information should have been disclosed on MLS and your agent should have caught it. Extra fees for short sales is common . But 3% for negotiator and the fact that the seller wants you to pay , is asking for a lot. In fact , they can decline a request to pay your closing cost , but request that you pay should not be made. I would also ask your attorney to check in to association fees unpaid. There are laws that may require you to pay them as the new owner.
I would walk very careful on this deal . And keep in contact with your attorney as soon as new information is presented to you.