Blues have received a joint bid - in the region of ?16million - from Stoke for Dann and Jerome.
Sources close to Blues have confirmed that "serious conversations" have taken place between the two clubs regarding a possible deal for Dann and Jerome.
City know they are vulnerable to any Premier League predators following their relegation from the top flight.
But they are determined to get the best possible deal for Dann, who is regarded as one of the best young defenders in the country.
City want in excess of ?12million for the 24-year-old, who has also been linked with Arsenal and Liverpool.
A source close to Birmingham said: "There have been serious conversations and negotiations are continuing but no fee has been agreed.
"If Dann is to leave, Birmingham are determined to obtain the price they feel is fair for one of the best young defenders in the Premier League.
"His performances over the past two years have been excellent."
Dann made the move from Coventry to St Andrew's two summers ago and formed an impressive partnership with Roger Johnson.
His absence during the second half of last season with a hamstring injury was a key reason for City losing their top flight status.
Should Dann leave, it will be another major player leaving Birmingham with last season's leading scorer Craig Gardner poised to move to Sunderland in a ?5million switch.
Life-long Blues fan Gardner admitted it was "a dream come true" when he made the move from local rivals Aston Villa to St Andrew's during the January 2010 transfer window in a ?3million deal.
He celebrated by finishing as leading scorer with 10 goals in his only full campaign at Blues and helped them lift the Carling Cup.
But Gardner's desire to continue playing Barclays Premier League football, plus City's wish to reduce their financial costs after being relegated, will lead to a parting of the days.
Jerome was linked with a ?4million move to Stoke during the January transfer window but no deal materialised.
He has been with Blues for five years since moving from Cardiff and was their top scorer in 2009-2010 with 11 Premier League goals.
But last season he often operated as the lone frontrunner as injuries deprived Blues of other strikers and he went 25 league games without a goal from November. His last league goal was against Stoke in a 3-2 defeat at the Britannia Stadium.
Source: Team Talk
Source: Team Talk