No negotiations can occur until after it is listed,the owner supplies all the required short sale documents, and a purchase agreement with a buyer, that the bank deems legit (POF, etc.) is submitted.  

More than likely current owner doesn't want current tenants to know property is in transition until last possible moment.

One subject I can't seem to wrap my head around is how a property owner chooses thier price and cap rate?

He has 2 surviving kin, one of which is institutionalized, and I'm fairly certain his (middle aged) daughter will want to sell.What makes this a possibly great opportunity is the fact that he was the first owner of the home, built in the late 50s early 60s, and owns the property free and clear!

Then I take a tour, then I ask if he/she will consider owner financing or a lease option or (insert form of financing here)? 

Louis area who could do things like closings, and who would be comfortable working with creative financing options like owner financing, lease options, subject to, and sandwichs or wraps.

I was wondering if anyone had any recommendations for knowledgeable real estate attorneys in the southern Indiana area (mostly Evansville, and/or possibly Indy) who could do things like closings, and who would be comfortable working with creative financing options like owner financing, lease options, subject to, and sandwichs or wraps.

Once it is empty he should list it as a owner occupy SFH and hope for the bestIt's a lost cause so best to walk away and buy when it goes into bankruptcy.

If a property of interest has a realtor sign in the front, do I contact the owner with a letter of intent or the Realtor with a letter of intent?

Learn to negotiate owner financing deals, and you can buy what you want with no money.