I am not in California but just came back from a conference and a few of my friends work those areas.
I do believe the broker/agent is giving sound advice.
From what I have been told in California it varies by area but there are many more short sales than REO.The foreclosure process there takes a very,very long time and can be expensive for the banks.
Some areas in California are receiving multiple offers over asking.The reason is California generally isn't a cash flow market so people wrong or right buy on speculation.
It's one of those markets that cycles up hard and crashes down hard so timing is more critical than other markets with more subtle swings in value.
With the short sales you will have to watch out for time lines for approval of the sales price.If it has been a while and the prices have fallen even more you will have appraisal issues.
This is why you need to know absorption rates for the specific area you are buying in and buy what percent the market is increasing,decreasing each month or is it staying flat.
Velocity is also a factor.If for instance December values declined 3.0,then January 3.2,then February 3.6 percent then the velocity downwards is increasing.
Also values might decrease but interest rates rise causing you to buy less of a house.
So really get educated and drill down the numbers to make an informed decision.Also make sure to compare with market declines apples to apples.
So if you want a 3/2 ranch on a 1/2 acre make sure you are looking at that data and not a mixture of sales with wide adjustments to bring in line.
no legal advice
Foreclosure auctions are generally cash only at the courthouse.Property that has already been foreclosed on that the bank is sticking in a auction is a different animal.