Ugh!, I am so sorry you are dealing with such unknown during (what should be) an exciting time.
Offers on short sales are NOT binding unlike with other property sales. It is easy to get a seller to "accept" an offer price and terms because they want out (usually due to serious financial situations) but that contract is not binding or even legally sustainable until: 1) the bank and the seller agree to a deal via executed legal documents (which usually doesn't happen until after the offer contract because of disorganization); 2) the bank agrees to sell for a specific price (which also - due to disorganization- doesn't happen until after the offer and usually is not the price the seller agreed to sell it for); and 3) the banks standard purchase and sale - no changes - is signed by all parties. Basically the offer contract means nothing.
A short sale is when the owner is trying to avoid foreclosure and instead sell the property for less than they owe the bank on their mortgage. This requires the banks approval, naturally, because the bank has to agree to losing money (and striking a new deal where the seller pays back the loss over time, as an example), or not agree (starting the foreclosure process). What (clearly) agents are not warning their clients about is that listing/sellers agents market these properties ALL the time before the above process has even started and with prices that have NOT been agreed to/approved by the bank which is why about 99% of these deals never happen. Now that the property you are considering is in pre-foreclosure this means that the seller has been officially warned that they are in default and heading (very quickly) towards foreclosure and they have X days/months (this varies depending on the situation) to do something about it -which usually they can't. However, this "grace" period is technically the time the owner can still try to sell the property it just depends on their organization and the banks as well. When the property gets foreclosed on the bank will force the seller out of the property and either auction it off or sell it direct to brokers as a foreclosed property (no owner involved other than the bank).
If I may offer some extended advice/warnings ... You may want to seriously reconsider the neighborhood you are trying to buy in. From what you have described - high volume of short sales and foreclosures - it will take more than a couple years for these areas to rebound, and for the properties to regain and sustain their value. Short sales and foreclosures - which as you can see sit on the market for very long periods of time - mean a lot of abandoned properties sitting on the market unattended (conditions decreasing) and being vandalized (perhaps increasing local crime?). Surrounding properties have serious affects on individual property value, so, if for example, you want to or need to sell your property 2 years from now it could be difficult.
I hope this helps! Good luck!
This is truly a stressful transaction. Sounds like your agent is doing their job. And Yes a short sale can take quite awhile and yes you are waiting on the bank. Here is a link to a parody I wrote for my weekly real estate column in our local newspaper.
I just wonder about the language in your original offer. Was it contiguent on a short sale? Could we argue that the seller and bank have changed there terms not that the property is in "pre-foreclosure?"
I am not suggesting that you walk away from your offer, but do consider your actual obligations here.
I would keep looking at other properties. I would also digest the thought it might be worth forfeiting your deposit on this property if you find another house. But then I say that without knowing what your deposit is.... Hopefuly you get my point.
Do feel free to contact me if you have any other questions.
I do however give the bank two weeks to respond on the initial offer and then use 1-2 week extensions so that my clients can stay in the market and be able to make an offer on anything new that may come up. It can distract from the waiting game and give your clients peace of mind that they aren't missing out on anything.
I have special training in short-sales or pre-foreclosure. Expect two (2) months to hear back from the bank. If it takes more than 3 months to hear back from the bank, the listing agent does not know how to deal/talk to the bank to execute the short-sale.
Short sales can and do work out fine, but they are totally unpredictable. You and your realtor need to do a realty check by examining the bank communication or lack of communication to determine the odds of your offer coming together. Sometimes coming into a short sale situation after a buyer has walked away after weeks and months of waiting is a better situation as the previous buyer has at least got the wheels turning for you.