Yesterday I viewed this house in Kailua listed for over $750,000. It's bank owned, and had been foreclosed a couple months ago.
We found that the house is infested with termites, has foundation problems, and basically has been stripped. It will probably need to be torn down, because the foundation is sagging so much it is laughable. Drywall has been ripped out to reveal the half eaten beams.
And this is why you don't want to buy a foreclosure at an auction. Imagine if you had bid on this house without the chance to do a proper inspection, and then you lose your 10% deposit to the foreclosure commissioner because you back out.
At least now that it is an REO, you have the chance to do a formal inspection and get out of the purchase before your deposit is at risk.