Yes, the short sale world we live in is bizarre.
However, most short sales never get approved by the bank. They still govern the market with so many being for sale. Some sellers list at the going market price (which the lender wants to see) and others list at a below market price to attract offers in order to stall a foreclosure action.
The sellers credit score is affected however. Getting a new loan with a good job is faster in terms of years than on a foreclosure. Yes, 2 to 3 years on a new loan after a short sale is a possibliltiy.
Buyers that have to move and buy a home within a specificed time frame often avoid short sales because of the time it takes to get the transaction approved by the lender and the higher fall through ratio. Those buyers that must move look at traditional sale homes or foreclosures. Investors or those that are not in a rush to move may consider the short sale homes.
To review the "Arizona Short Sale Advisory" from the Arizona Department of Real Estate that will answer many of your questions, see this link: http://www.arizonahomesland.com/forsellersorlandlords.html
May I wish you the best.
Jeff Masich, Realtor
Arizona Homes and land