Good luck and say some prayers for the person that lost their life! Negative things happen all the time but that doesn't mean the property isn't valuable!
When banks approve short sales they send out an Agent to do a Broker Price Opinion "BPO", or they have an appraisal completed. Whether Fannie Mae, or Freddie Mac, the bank is looking to net a predetermined dollar amount. I know Freddie Mac wants to net 88% of the Broker's Price Opinion. If your lowball offer nets the magic percentage your offer could be accepted.
You can ask your Realtor to do a CMA on the house to get a rough number as to what the bank's valuation is going to be. Also ask you Realtor to see what similar short sales have sold for in the area, and if any are comparable to the property.
Some things to remember in short sales. What the buyer paid 8 years ago isn't the same as what their current mortgage is. They could have refinanced, or have a second mortgage on it. Many people used their homes as ATM's so they owe more now then what the origianlly paid for the house. Also, listing prices on short sales are deceptive. You could make a full price offer based on the asking price, and it be turned down in a short sale because the lender doesn't approve it. The listing agent lowering the list price on a short sale just serves to get the house noticed by more buyers, it doesn't reflect what the bank is willing to accept. The number that is most important is what the bank's valuation comes back and says its worth. Check some online valuation sites, as the banks use similar things to get initial values, and see what the house is valued at. This will give you a very rough estimate of a value for the house.
You're offering about 80% of the asking price. You need to determine the value based on sold properties over the past 6 months, and then compare your offer to that value. If it's the property I think it is in Mebane, then a $120,000 offer is well below what the bank likely is going to say the property is worth.
And the last thing to remember about short sales, is to have patience. They can take a long time to get an answer from the bank. 30 to 45 days sometimes. The worse they can say is no, and then you increase your offer until you get a yes or decide it's too much for the house.