New Jersey requires full disclosure of material facts. Dual agency, which both agents are working under, would not allow preference to the buyer or seller.
Talk to your attorney to determine how to proceed.
As to negotiations, they only end when both sides agree.
Short sales are pretty much sold "as-isâ€ as there is usually no money for the seller to fix anything. You can ask the bank, but usually these homes are sold so cheap.. they are not going to give anything. Why do you think the realtor knew about the water, you did not see or smell water damage? Leak as is.. Geyser leak or water dripping.. Damage as in the basement is full of water or damage as in, there is some wood rot because of a leak.
People who buy homes need to do their due diligence. YOU need to have an inspection, even if it is for your own knowledge for a short sale to know what you are getting into. People who buy short sales, know there are issues at times.... but the overall savings of getting a home at probably 50% below market value outweighs the plumber charging you $300 to fix the leak.
In this market people always look to blame someone else. Something for free. Donâ€™t buy the house. It is a short sale, and now that there is approval I would bet that someone will step right in and take your spot.