The REO's are sometimes priced very, very low intentionally to attract multiple offers to drive the price above list. Be sure to research the recent comparable sales in the immediate area for a similiar sized home to determine market value.
Each property is a unique situation. More times than not seller concessions such as home warranty and closing costs are countered out by the banks in my experience. This does not mean that you cannot ask for them-just be prepared for a possible no. They typically want to focus on price and like clean offers with the least amount of contingencies.
Best of luck,
Yes, you most certainly can try to negotiate a lower price. Most banks and asset management companies handling REO properties have certain price ranges that they can negotiate with. They are usually willing to help with 3% in closing costs immediately. Of course if the property has been just listed they are more reluctant to negotiate than with a property that has been on the market for 90+ days. Moreover, there are the some REO listings that are coming on the market being priced very competitively in order to draw multiple offers. It just depends on which bank or asset management company is holding the listing.