re: REO starting to punish Seattle real estate...

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Is that the auctions where they auction it, and if they don't get a good enough price, just don't give it to the highest bidder?

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No, that's the private auctions that auction.com runs.

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When they have these auctions, and the trustee approves of the auction, do the owners then have to sign off?

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Nope. This is a trustee sale on the courthouse steps - in other words, a foreclosure auction.

ETA: if by "owners" you mean "lien holders", then yes, they do get to set the minimum bid. But even just $1 over their minimum bid clears the auction (which is the case in the majority of sales). If the auction doesn't clear the minimum, then it reverts to the lien holder.

My thread title is misleading, because technically the property in question here is not an REO. But my overall point is that very few properties in this price range are clearing at the auction, and are thus going REO and are now going to be affected negatively by the auctions setting the new (much lower) prices.