To start with a BPO is not an appraisal, and somewhere in the process, an appraisal was done on that property too. Sometimes a couple of BPO, or some AVM is done as well, and the lender that is in another state, or Country in some cases is relying on these to come up with a value. Yes, beware of it all, and do your own home work and give a bid to purchase that is fair. Then another process of appraisals and other cheap value estimates will be done to see where it is, by another group of people, so hopefully the right number in a changing market will come up.
Best to you, but REO are not normally the best way to go, unless you have cash to purchase do the work your self and either then refinance to stay or sell the home on the open market after the repairs have been done.
HLR An appraiser that has worked for 37 years, and find BPO's a cheap fast way the Mortgage services get a idea of what they have, but have an appraisal on record as well, that they rely on more.