As a loan originator who has worked several short sales for my clients, I will tell you that what the Seller's agent is telling you is good practice. Legally, if the owner of the house has signed the contract as the seller, then you can move forward with a loan application. It is actually best for you to do so because the Seller's lender will likely give you a short time to close once they agree in writing. That time may be too short to get a loan ready to close.
I will tell you that we recommend our clients to move forward with the loan application when buying a short sale home and waiting on lender's approval. You already have the terms of the contract in place. We don't charge an application fee, so it doesn't cost the buyer anything to move forward. We can take the loan all the way up to an approval with just the appraisal as a condition, which is typically the only up front fee in a loan transaction. That way, when you hear from the Seller's lender, you are ready to close within 2 weeks. Speaking for the way we do business, there is really no con except it takes a little of your time and your hand may get tired from all the signatures.
I assume you already have a lender in place that has pre-approved you. I'd give him or her a call first thing tomorrow and email the contract to them. If not, give me a call, and I'll get you under application asap.
Senior Loan Originator
(847) 744-0168 (cell)
(847) 963-1000 (office)