Is it true that some bank-owned and short sales props are actually selling higher than market value?

A property will only sell for what you can reasonably purchase a like matched home. So if you can buy the same or similar home nearby, you will purchase the lower priced home. I dont believe that the source of your info is correct. Foreclosures are mostly sold for much less than the value. Which is why heavy foreclosure areas have seen the highest drop in property values.