All good answers below and because of low inventory and strong competition, the lower priced bank owned homes are selling for a premium. With that said you are dealing with a seller that can actually sell the home vs. the short sales which can take from 90 days to 6 months with no results.
Bank owned sales are normally "as is" without any repairs and can be in tough shape. Also they tend to have deferred maintenance and hidden defects so do your homework and inspections. Homes do not do will if they sit vacant, seals dry out, bugs get in, lawns die, and appliances are removed.
Lastly, consider price vs. value. Yes sometimes a bank owned home may have a great price, but be located in a neighborhood full of future potential foreclosures. As we see more bank owned sales come on the market, and you will not for the next year or so, this competition may soften prices as inventory becomes more plentiful and the buyer pool goes down. I give my Clients an up to date list from Foreclosure area in the area they are interested in buying to see what activity exists.
Often times I tell my Clients it may be better to buy a home in an older, more stable neighborhood where foreclosure rates will be less. Also these homes tend to have lower HOA or Mello Roos fees. Buying from a real Seller will get you a better condition home and the possibility of negotiating needed repairs.
Do your homework, look at everything out there on the market, don't get into a bidding war where you pay above market value, and take your time. The best advice I can give anyone is to look at enough homes to know when a good one comes along.
Pick a good agent that will spend the time to educated you. Have that agent set you up on an automatic update - because when a good listing comes along, it will be the early bird that gets the worm. The other day I represented some Clients on a successful purchase where the house was on the market less than 4 hours.
I have written a post with some tips on buying a bank owned home . The article is titled Bank Owned Bingo - 5 tips for Success - link is below:
It is a great time for starter buyers in San Diego as long as you are careful and make an informed purchase - don't let anyone push you into anything that does not feel right.