HELP! Buyer dropped out but left damaging inspection report!

[Jane S.]

I'm selling one of my rentals and received an offer from a buyer along with their inspection report which is full of errors and lists many items as non-functional that ARE functional. I had some minor plumbing needing repair and it will be done today. The original buyer asked for return of earnest money and their agent didn't inform my broker until 3 days later. Meanwhile no one could view the property. I have now taken it off the market temporarily. BUT ...

When I asked my broker NOT to give this erroneous inspection report to a new buyer he says he must turn it over since it's "Material Fact" and he is legally bound to do so as a new buyer has to "know what I know". He says "we can maybe write a short letter to explain my view". A lot of good that will do. Short letter vs. 50 pages of errors??????

I've never seen such a damaging inspection report in the 16 years I've been an active investor! It will kill any sale. It's even hard to read because the captions for the photos dont even match up.

Before I listed it FS, I tried to rent it but none of the applicants could qualify. I had rental offers but their credit scores and financials disqualified them. It's a C neighborhood, but I remodeled the house so it's a B quality. 

I'm stuck with an exclusive license with this broker until the end of the year. I never thought it wouldn't sell within a couple weeks. But many RE folks agree the sellers market here "done got up and went."

The inspection report has the same effect as a big sign on the front of the house that says "DONT BUY THIS PLACE"!

The broker might agree to cancel the listing contract if I pay him I dont know how much. He's gonna discuss it "later today" but I dont know what that means. He's usually vague when it comes to respecting my schedule.

The other possibility is to list it as a flip and just get rid of it to a wholesaler. I dont know if the MLS would allow that!