This is a question I received from one my clients the other day.  They are looking to buy a Canton Michigan home.  Basically how the negotiations go depends on how the listing agent priced the home.  There are two main components I believe in a short sale that determine how the negotiations go.

1. Fair market value of the home.  The bank that is selling the property is going to do an appraisal or a BPO on the home.  They are going to look at the fair market value of the home and compare it to your offer.  If your offer is far below the fair market value that the appraiser says it is,  then they may say no to your offer.  The bank considers the market trend in the area (are home values falling)  The bank considers the costs of keeping the property.  The costs of the attorneys fees, the costs of maintaining the property.  Then the bank comes up with a number they can live with.  It is usually a drop dead number.
2. Whether there is a second mortgage company is involved.  This usually complicated the whole short sale process especially if it is a different mortgage company from the first.  Some times the second mortgage company don't want to co-operate.  Sometimes they feel the borrower is collectible so they don't want to take anything less than full amount.  Sometimes they need to get at least a fraction of the money owed.  Even $5,000 or $10,000 is sometimes better than nothing.  A second different mortgage company throws an unknown factor into the mix.  Sometimes they just never close.

So you can't really low ball a short sale much lower than what foreclosures are going for in the area.  Sometimes you don't get a second shot at the offer.  So my opinion is...if you want to low ball offers then do not go after short sales.  If you want the house put in an offer that is close to the market value so you make sure you get the home you want.  That's just my opinion.