The reason it took so long for the agent to submit the offer MAY have been that the agent hadn't previously helped the owner fill out a short sale package from the lender. It's wise to try to get such a package before receiving an offer, but it's not always done. Filling out all the information (Depending on who the lender is) can take some significant time because they often require bank statements, pay stubs, tax returns, etc etc.
The individual handling this case for the lender probably has a huge stack of them on their desk and has to weed through them to get to your situation. I generally suggest that the agent regularly communicate with the lender in order to determine how the process is going. Sometimes it speeds up the process.
If you want to learn more about the whole process, there's a pretty good book on Amazon by Loren Keim called "Short Sales: Step by Step". It's really designed for the home owner who is under water or the Realtor who is advising them, but it's a decent explanation for anyone, and I think it's $12. I'll put a link under this.
I have worked with banks that are so behind they didn't even have time to get to our short-sale package until the day before the property was set to be auctioned off on the court house steps & that was with a complete short-sale package submitted from the beginning. So, even if a complete package is sent in by the listing agent it could take a lot of time depending on the volume that particular bank is dealing with.
Since you have stated that it is pending negotiator review then "set-up" could mean that is when they plan to start on the file by ordering a Broker Price Opinion (BPO) or appraisal. If they have already conducted a BPO or appraisal then "set-up" could mean that the negotiator will be reviewing the package and getting it ready to send to the investor(often the bank who services the loan does not actually own the loan or note) for review or countering out any items in the original offer that are not items the bank/investor will agree to.
There are so many different scenarios that could apply. If this is a home you really like and you feel you would be getting a good deal on the home with the offer you made then I would suggest being patient. I have short-sales accepted by banks all the time that are well below market value and much better deals than many of the foreclosures that are receiving multiple offers. I hope this info helps...good luck!
The "negotiator" at the lending institution is overwhelmed with short sale situations with people losing their jobs and home prices falling. That means they need considerable time to consider each property file. They must order appraisals and wait for them to be completed. Appraisers are very busy also. There may be multiple offers for a property. The lender does not typically begin this process until there is an offer to purchase submitted to the lender.
The time frame for a short sale purchase offer can take a few weeks if all of this work has been completed and your offer is one of the later offers of several submitted. In your case, it appears that your offer may be the first offer submitted. If the lending institution is just beginning this process, you can expect to wait from one to three months and even longer in some cases. It depends on where they are in the process. You are actually lucky you may have a response sooner than many. We have had successful short sale closings that exceeded 120 days from the offer to purchase. We have had others that took less than a week. Good luck to you. Hopefully you can be patient because the reward could be well worth the wait.