As for your REALTOR, I wouldn't see any reason why they wouldn't want your purchase to go through. If it reverts back to the bank, your agent wouldn't benefit in any way.
It is unfortunate, but this is some of the pain we have to deal with when working with short sales.
Best of luck on your home purchase.
Auctions have many different guidelines, most favor the banks that the auction represents. If there was a certain reserve set by the bank and it wasn't met then they can buy back the property. I would need more details to determine whether or not there was misrepresentation or wrong doing... If you need other representation in the future let me know, I have represented many clients at auctions with great success...