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You should stay at the property until the bank confirms that they will approve the short sale. Many banks are involved in short sales these days and there is a lot of chicanery going on regarding these deals. In many instances the bank will "approve" a short sale, and then try to come back and get a higher price from the buyer or they will approve it and then cancel it at the last minute leaving everyone holding the bag. Even when banks have executed contracts, they have been known to pull out at the last minute. The banks are in a very powerful position when it comes to foreclosures/short sales these days and they really don't care if you threaten to sue them for breach of contract or any other of a variety of things they are guilty of civilly. The government lets them get away with everything short of murder -- they run roughshod over consumer rights and there is not much you can do unless you can afford to pay a lawyer big dollars to sue them and even then the banks thinks its a joke. Your real estate agent is right in this -- even if the bank verbally approves the short sale, you should not make arrangements to find another place to live until a week or so before the closing date -- and even then, you should make your new place conditional upon the short sale happening if you can do so, because there are numerous cases out there where the bank has pulled out on the closing date. I know that this makes it tougher to find some where else to live, but if you move and then the short sale falls through the bank may just foreclose, period -- because they do not have to deal with the problem of getting you to move out at that point.
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You can either restart the short sale process with the current potential buyer or a new potential buyer or you can let them foreclose on the property. Credit report wise, the short sale definitely looks better than a foreclosure on your credit and that is what I thought was your major concern here. However, if you do not care much one way or the other on that issue (credit reporting), then there is no real reason to stay at the property and you shouldn't let a good deal on the new place get away.
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