Short sale disclosure is a tricky area. An agent is required to disclose any information that he or she knows to be true about a particular property. Here's the rub. Did the agent "know" it was or might be a short sale? If the agent didn't ask the Seller about this possibility, than the agent might not have known it might be a short sale. Most Sellers are too embarrassed to bring it up themselves. They sometimes think 'if I can get the right price, I'll be Ok'. Sellers sit in denial until it's too late. It's not until the offers come in, that the agent finds out it will be a short sale. BUT, once the offer is received, someone should have had an idea that this was going to be a short sale. This information should have been given to you before you had a home inspection, never mind before getting to the P&S. As a listing agent it is important to have this conversation with the Seller. I am a Certified Distressed Properties Expert. As part of my standard interview process with any Seller, I raise the question of a possible short sale situation just to make sure I know where I stand. As a buyer's agent, I never assume anything, again, I always ask the listing agent if this is a short sale or has the potential to be. I also do a little research on the registry website and research the current mortgage owed on a particular property. It doesn't always give you the answers you want, but if I see a mortgage was given in the last 8 months or so, I figure the Seller might have refinanced. When I run my comps and see the amount owed is close or more than market value, this tells me this might be a short sale situation. So when I sit with the Seller, I can gently bring up this possibility and explain to them they have options that can save them from foreclosure. Its been a week since your post, what's happens since then?