Most banks try to price short sales below market value to sell fast; They also usually price them at or close to the lowest price they are willing to take for the house at the time. However, they are getting more flexible, in a slow, seemingly glacial fashion. They often are banks that are nowhere near where the home is listed, so they send some guy in from Orange County to price a home and deal with a home in Studio City, for example, and then they have no actual idea of the local market. Not always, but often. Then they take months to get back to buyers about their offers a lot of the time.
We tell our buyers it is better to look for homes that are NOT short sales, that have been on the market for over 90 days, and that the seller is willing to negotiate on. Then you can get a great deal and deal with a real seller and not a corporate entity. You can find good deals on some short sales as long as you have amazing amounts of patience and a fair amount of luck, but there also seems to be this public fascination with short sales and foreclosures that ignores the fact that there are great deals sitting right down the block from John Q. Homeseller who can take as low a price as you (or a good Realtor) can negotiate, without all the hassles of short sales.