When buying a bank-owned home, one of the major benefits of purchasing from the bank, as opposed to buying at auction, is that you can go through the usual escrow process. This includes an inspection contingency period in wich to fully investigate the property via home inspection, pest inspection and any other investigation the buyer wishes. Granted, this timeframe is usually shortened by the bank during negotiations to between 7-10 days, but it is still in place. This, along with the usual title search and subsequent purchase of title insurance, makes it very similar to a regular or short sale purchase.
At the beginning of the bank-owned negotiation process, there is an addendum to the contract, prepared by the bank, which emphasizes throughout, that the buyer is purchasing "as is". This fact does not negate the buyers right to request repairs/credits or back out for any reason prior to the end of their inspection period, without penalty. I do warn my buyers ahead of time, however, that due to this fact, it can be a lot more difficult to negotiate concessions from a bank at that point but in some cases where extreme issues were discovered, banks have agreed to repairs or credits.
This addendum will also usually contain language which will change, among many things in the standard purchase agreement, how the physical contingency is removed. Most selling banks will make that contingency removal "passive". This means that by the end of an inspection timeframe, if the buyer has not communicated any concerns with the physical state of the property, in writing, their contingency (and right to request repairs/credits) will automatically expire at the end of the inspection period. In a regular purchase, this contingency removal is, by default, always done in writing, notifying the seller that "this contingency is hereby removed". One of the many benefits of working with an agent is having somebody to keep track of those important "action" dates and let you know what is required and when.
I hope this has helped to answer your question.