INDEMNIFICATION: The borrower shall indemnify, defend and hold harmless the negotiator and/or buyer and all persons or assigns, regardless of responsibility, from all costs, expenses, suits, liabilities, damages, attorney fees and claims of every type, including but not limited to those arising out of injury to any person, or damage to any real or personal property to any person, including the borrower and said financial institution, for (i) any items resulting from the information furnished by the borrower, or (ii) those relating to the financial information, or ability or inability to pay for or continue to support the debt of which the negotiator and/or buyer is attempting to negotiate a short sale on the property by the negotiator and/or buyer, or any person in the negotiators and/or buyers firm, or the performance or exercise of any of the duties, powers or authorities granted to the negotiator and/or buyer by the borrower. ___________________________ Seller ______________ Date ___________________________ Seller ______________ Date ___________________________ Buyer ______________ Date

Buyer understands that in the event that the underlying debt is not paid off, the lender holding the deeds of trust may foreclose the property, which will extinguish Buyer’s interest in the property. 3.Seller and Buyer hereby agreed to defend, indemnify and hold all parties involved in this transaction harmless from liability in the event that the holders of the mortgages and/or deeds of trust on the aforementioned property are called due and payable.4.The seller agrees and understands that the buyer is purchasing their property with the buyer taking seller’s existing loan “subject to†with the current loan balance and prepayment penalty to be deducted from sale proceeds. 5.In the event there is an escrow account for taxes, insurance, waste fees, association fees, or any other impounds or escrow, said funds shall be transferred to purchaser without adjustment and if there is an escrow shortage same shall be charged to seller at closing. 6.The borrower/seller shall indemnify, defend and hold harmless the buyer and all persons or assigns, regardless of responsibility, from all costs, expenses, suits, liabilities, damages, attorney fees and claims of every type, including but not limited to those arising out of injury to any person, or damage to any real or personal property to any person, including the borrower and said financial institution, for (i) any items resulting from the buyer buying the property, (ii) information furnished by the borrower or (iii) those items relating to the financial information, or (iv) the ability or inability to pay for or continue to support the debt of which the buyer is agreeing to.

Buyer understands that in the event that the underlying debt is not paid off, the lender holding the deeds of trust may foreclose the property, which will extinguish Buyer’s interest in the property. 3.Seller and Buyer hereby agreed to defend, indemnify and hold all parties involved in this transaction harmless from liability in the event that the holders of the mortgages and/or deeds of trust on the aforementioned property are called due and payable.4.The seller agrees and understands that the buyer is purchasing their property with the buyer taking seller’s existing loan “subject to” with the current loan balance and prepayment penalty to be deducted from sale proceeds. 5.In the event there is an escrow account for taxes, insurance, waste fees, association fees, or any other impounds or escrow, said funds shall be transferred to purchaser without adjustment and if there is an escrow shortage same shall be charged to seller at closing. 6.The borrower/seller shall indemnify, defend and hold harmless the buyer and all persons or assigns, regardless of responsibility, from all costs, expenses, suits, liabilities, damages, attorney fees and claims of every type, including but not limited to those arising out of injury to any person, or damage to any real or personal property to any person, including the borrower and said financial institution, for (i) any items resulting from the buyer buying the property, (ii) information furnished by the borrower or (iii) those items relating to the financial information, or (iv) the ability or inability to pay for or continue to support the debt of which the buyer is agreeing to.

The current loan balance and prepayment penalty shall be deducted from sale proceeds and if there is an escrow shortage same shall be charged to Seller at closing. 5.The Borrower/Seller shall indemnify, defend and hold harmless the buyer and all persons or assigns, regardless of responsibility, from all costs, expenses, suits, liabilities, damages, attorney fees and claims of every type, including but not limited to those arising out of injury to any person, or damage to any real or personal property to any person, including the borrower and said financial institution, for; (i) any items resulting from the buyer buying the property, (ii) information furnished by the borrower or (iii) those items relating to the financial information, or (iv) the ability or inability to pay for or continue to support the debt of which the buyer is agreeing to.

Without those numbers he is giving you a way that can be defended in court. 

However, when things change (and they will) you need to be ready to both defend yourself (that means your business, assets, etc.) and capitalize on the opportunity. 

We can also assume that under audit, these deductions will likely be challenged and it will be up to you to defend the deductions. 

Ended up paying 2k (his legal fees) so I didn't even have to submit to insurance company and my LLC was dismissed as a defendant before he sued his employer and their insurance carrier.

Is using the replacement cost not a reasonable and defendable approach?

The OP, never expecting to have received anything but positive interest, is all of a sudden finding themselves in a position of having to defend every aspect of the financial, marketing, and legal arenas of the subject property and offering.