Short sale back up offer, new to this please help

[Jessica Moore]

On 5/15 made offer on short sale home for listing price that was advertised as b of a approved price.

5/15 went home that night and home says pending bring backup online.

On 5/19 got a call from Realator saying that the sellers were out of town and our offer would be presented today. Later that day our agent sent over short sale addendum which we signed and sent back.

Today, 5/21 get call and email saying that there was another offer all cash but way under asking price. Agent says it will for sure get denied from bank and we are backup offer.

I have never done short sale and there is tons of different info online.

Does the bank know that there is a higher back up offer waiting? I know they handle one at a time but do they know this offer is waiting?

If bank denies first offer will they immediately go to mine or does the seller get to counter and negotiate?

Does the bank ever respond more quickly when the offer is way too low? 

Online it looks like a month prior the house was pending buy it fell through? Is this how they got the approved price maybe? Could previous appraisal still be used? 

Please please help we need advice and knowledge your response is appreciated!