I don't see anyone from Buffalo answering here, so I will try. Here our contracts are possibly unique, it is not your agent or attorneys fault, except maybe a communication problem. The contract is not binding until the home inspection contingency is removed.
When buying a short sale or foreclosure I would advise not putting the home inspection in the contract, unless you are willing to take this risk. If you want to have a home inspection for your own information you could do it outside the contract. These places are sold "as is" so there isn't much reason to have one. It's not like the seller is going to fix anything for you.
Foreclosures and short sales are very difficult emotionally as you are dealing with people at the bank who have a different outlook than a seller/owner would.
Also, your home inspection price sounds really high! Was it an income property, multi unit , you were buying?

The inspection could have been stipulated in the contract, and why did you not consult with your attorney as soon as your offer was accepted to better protect yourself.

Anna

Are you saying that my agent could have included in the contract that we would purchase the house barring no outstanding issues with the inspection? I would have signed the same day the offer was accepted and THEN had the house inspected.

In short sales, as you know it's all up to the bank and houses sold as is; with that said any good real estate attorney would have included the inspection provision in the contract.

Anna

JR, the difference that I saw in having an inspection after a signed contract (on a non-short sale) is Tt would NOT have lost the house after having paid the cost, unless Tt decided against it. That's a big difference in the eyes of a buyer.
In the case of a short sale, counseling any cash outlay before some kind of resolution has been established with the bank makes it an almost sure-fire light a match to it scenario- that money's likely gone. An accepted contract from the bank at least eliminates the near certainty that the money is wasted (in NY).
Being very clear to buyers about this seems imperitive, or they'll be throwing away inspection money over and over.
People will continue to use lawyers here, it's just that it would be a true "atty review", rather than lawyer generated- you and I could have a contract signed by both parties in an hour, not weeks, and probably have both parties feeling more relaxed about the whole transaction (and glad for the time saving measure of getting the outline of the purchase handled fast). Just a guess, but Realtors here are as smart as anywhere else, so why wouldn't they do just as well? It's nice to have a sense of control over timelines and a full grip on the contract contents for clients- the more we can offer them, the better, imo.
Another opinion: lawyers are very comfortable with their presence here, and have no intention of becoming extinct in a real estate transaction, as they have in many, many states- short sales being the exception (we wouldn't do a short sale without the client having one in ANY state)- all sellers (opinion) should have a lawyer detail all options/ramifications before a short sale is entertained, and buyers should understand fully that their odds are slim, at this juncture. Banks aren't cooperative in most cases here.

I know, Laurie, and even with lawyer involvement, I wish the inspection would take place after the contract was signed. The sale would still be contingent on the inspection, however, so I don't know what that would accomplish. Blame the attorneys' involvement on their own lobby, obviously it’s very strong in NY or we would all be writing contracts. I’d have to ask you, though, if things changed and we did write the contracts and perform all the duties that Realtors in other parts of the country do, would the buyers go along with that or insist they have attorney representation? You know how they kick and scream at buyer agency, I’d be very surprised if they took any change well.

JR, that's why ( just about everywhere else in the country) a contract is signed, stipulating a few days in which the buyer is to get an inspection, and a response/addendum for repairs. It's fair to both parties, and tends to make the inspection itself less about additional negotiating, and more about property comprehension (assuming that there are no big issues).
What's so odd to me is that, in most of these other states, no lawyers are involved in the process- start to finish, the Realtors do all paperwork. You'd think, with lawyer involvement here, that the process would make a whole lot more sense! Or maybe not.
Either way, it's an unacceptable practice to require the inspection first, for exactly the reason that Tt has described.
With a short sale, buyers MUST be alerted that there is a fair certainty that the contract won't go through- why gamble with their money but not make clear the dicy nature of short sales?

Untill contracts are signed by both sides, the seller is free to accept any other offer.

Thanks for replying, no we were never told that it was a gamble. When I heard "accepted offer" I thought it was a done deal, I had no idea that it means nothing in NY. I hope someone will read this and learn from my bad experience.

What I'd be curious to know is this: did your agent explain to you that this property had better odds of foreclosing than seeing a successful short sale? Was it clear to you that spending money on an inspection was a gamble?
If not, ask your lawyer for direction- short sales are NOT regular sales, and should be handled differently than a regular transaction when buyers are counseled.
On the flip side, this horrible NY practice of "inspection first" has caused regular home buyers to lose inspection money- this nonsense of an offer and acceptance (worthless) is not worthy of a $500 commitment to an inspector. Sorry to hear that you're yet another victim of this antiquated practice!

Hi Tt
It all depends on what is mentioned in your contract. It looks like you did not have a signed and executed contract in the first place between you and the seller ,your agent does not seem to have enough experience to let this happen.
Good Luck
~~~~~

Don't know about Buffalo, but in lower NY we do not sign contracts before the inspection.

Excellent question to ask your attorney....

Hi Tt
It all depends on what is mentioned in your contract. It looks like you did not have a signed and executed contract in the first place between you and the seller ,your agent does not seem to have enough experience to let this happen.
Good Luck