Thank you both for the answers you have provided.

Here's a short answer to your question:

1. Short sales are still held by the homeowner, not the bank. The homeowner (seller) is hoping to get the bank to approve the short sale so they can move on. The bank has to approve BOTH the buyer's offer and the seller's claim of hardship before the sale can proceed. The bank may or may not be willing to take the short sale offer - they don't own the property yet, and thus aren't obligated to do so.

2. Short sales are typically listed at "come-on" prices, set below market to attract offers to start the negotiating process with the bank. The bank typically will not entertain the short sale option until the sellers have offers in hand. There are cases the sellers have an idea as to what the bank will take for their property, but these are not the norm.

3. REO's are bank owned. The prior homeowners (sellers) have been taken out of the picture, since these homes have already gone to auction (completed foreclosure) and have been taken back by the bank.

4. All prices are negotiable, but the bank has no obligation to accept any offer on a short sale property. Expect the short sale process to take anywhere from a few weeks to 6 months or more before your offer is accepted by the bank.

The price on a "short sale" can be set anywhere, it may have nothing to do with the bank's position nor what they will genuinely accept. The "Third Party Approval" is almost certainly the bank, but it may also be the investor that that mortgage company sold the note to or both.

REO properties are OWNED by the bank (REO actually stands for Real Estate Owned and it is a term that banks use to differentiate between loans made and collateral pledged and property that they actually own and control rather than the notes on the property). When the bank owns the property, the bank makes the decisions about what to do with it and what price to sell it for, the homeowner is no longer involved so they have no part in the process of the sale on REO's. REO's are the more certain sale and the investor has generally approved the sales/offer price prior to bringing the property to market.

When a property is still owned by a homeowner (check the public records and the dates of filing for a property to see who the owner is) then the homeowner must approve the sale. But, if the amount the property is being sold for is less than the amount that the owner owes the lender (and or investor) (thus a "short sale") then they too get a say in whether they are willing to allow the transfer of ownership and the subsequent loss on the property note.

Yes, the price is negotiable but you should know that the bank will acquire (generally 3) BPO's or Broker's Price Opinions about what the property is worth before responding to an offer. The offer should be consistent with market sales and in many cases it's achievable. However, one note of caution, you will wait a considerably long time to hear back from a bank/investor. If you need to move into a home on a certain date forget about a short sale. You can't control the time line.

Also, once a price, acceptable to the property owner has been established but not approved by the bank, it may have been intentionally set to receive multiple offers. This has the general effect of producing multiple buyers/offers who then bid the price up to get the deal. It's hard to control where you stand on the deal. And one final note, as the market begins to turn around and values begin to go up (this will vary by market around the country) the banks may cancel a short sale contract that they have already agreed to. You don't know if you've gotten the deal until the deal is done. You have no real rights in the contract, wait until you read one!

Don't bother packing until you're closed and make sure any deposits on anything related to your move are refundable... If you have to sell a home to buy a short sale, forget it.

Good luck, get a great deal and make money!