Short sales are a pain to deal with. Sometimes they do different things in different ways so you never know for sure. What is happening is the seller is accepting offers and showing them to the bank to see if the bank will accept one. I don't believe that is the best or correct way to do it, but..... A better way would be for the seller to collect the offers and at some point tell everyone that submitted an offer to make your final and best offer since they are multiple offers. Then the seller signs it and presents it to the bank for consideration which can take months. maybe this is what they are doing and it would be the correct way to go.
I don't think the bank will give a darn what sort of loan you have as long as you can get it, it will be allowed on the home and won't be disallowed because the home will not be able to go with a FHA loan. The bank will look at the bottom line so if you are asking for closing costs they will take that into account and it will reduce the bottom line the bank looks at. Maybe your agent knows the house is in such bad shape that it can not go with a FHA loan, in which case you need to change that or look at other homes.