". . . But even though it was pre-approved at 199K, the bank still can have the option to up the price once they get the paperwork right? . . ."
Just as every house is a bit different, every loan is unique, and so is every sale.
Just because the Short Sale of this house was previously approved for some other, now anonymous Buyer, we don't know if it will be approved for you.Price is not the only factor.
Was the previous "approved" Short Sale going to be an FHA guaranteed deal ?
Did that prior Buyer want the current Mortgagee to pay his Closing Costs like you do ?
We have no idea how far along in this process the prior attempt got before it was derailed.