Great question! A client and I were discussing that same question last month. He was able to buy a fishing cabin on a river near the Oregon coast for 50% of what the previous owner paid for the cabin and acre of land.
As with all things in life, it depends on the lender that holds the property. Some lenders are so back logged with properties right now and trying to reorganize after merging some of the largest mortgage companies in the world into one system that properties are getting caught in a limbo. This house, you mention, may be one of those homes.
There is a high turnover rate for the bank representatives hired to track and oversee the sale of these properties. You can imagine what it takes for the replacemen, of the representative,t to do to get up to speed with a pile of files, REO properties, to be sold. The representatives have x number of REO realtors (the properties are listed with realtors to maintain the property and submit offers to the bank representative recieved from interested buyers in the area the REO home is found) to meet and get caught up on each file.
The bank representative is not a negotiator, in most cases. They just manage the file and apply the bank's policies on how and when to drop prices. They have some discretionary power in what offers they can accept, say up to an offer 10% under the list price, even if it is a cash offer.
Find a realtor with REO experience in the area you want to purchase an REO home and start making offers. That is the best way to learn the REO rules in your area. As you make offers (many times the bank rep will ignore low ball offers and not even respond) and communicate with the banks, through your realtor, you will become more knowledgable in how low the different REO owners in your area are willing to go on a cash offer.
Good luck, there are some great deals out there right now and will be more in the next year or so.