Where are you located?An agent typically makes close to or the same money on a foreclosure as on any other transaction for the same dollar amount. Of course bank owned properties do sell for less than standard homeowner sold properties where there is equity involved. I have sold bank owned properties for $60,000 and $1.5 Million regular sale properties in the same quarter. You might just have to talk to more than one agent. There is no time that you should try to buy a property yourself unless you are an attorney. Even after 7 years, I am constantly learning and growing in my knowledge of real estate. Listing agents who sell REO's (foreclosed bank owned properties) are not going to look out for your best interests. They represent the bank and will protect that relationship. Newer agents are hungrier, typically.
An appraiser takes your property, the "subject property", and draws comparisons based on MLS information. If you have 2 baths and there is a home similar, but with only 1.5 baths that sold at x amount of $, the appraiser may then add $2,500 or whatever amount they think appropriate, to increase the value of yours or vice versa. Each differing item on the mls list is either an addition or a subtraction. They add or subtract a percentage for increasing or declining value. The same for excellent condition vs average or below average, and quality of construction eg, granite vs formica. So it is highly variable. An appraiser can not see a more flowing floor plan, more effective use of space, or other more subjective things. They can not see that a house took a year to close in a rising market, because of a legal issue as an example. They can't see how well their comps were marketed. and Appraisers are not always right. If you feel the valuation was low, try to find some similar homes, in similar condition, that are nearby that have either appraised or sold for a value more than your own, in the VERY recent past. If you think a house used as a comp for your appraisal was sold for lower than value, call the listing agent and find out why. If you know your neighbors whose homes you know well enough to judge, ask them if they have been appraised recently for refinance. I agree with wetdags, in that the smaller the house, the higher the price per square foot, all other things being equal.
I would agree with Glenn and add only one thing. If it goes to foreclosure, you will not want the real estate agent who represents the bank to be your agent. Find your own, even if it is someone in the same office. In any "dual agency", the agent's primary responsibility is to the owner, rather than the buyer. This is especially true where the bank is the owner, because more than likely the agent has represented the bank many times in the past and will again if they continue to represent the bank well. Therefore they are more likely to protect the bank's interests instead of yours, where your future contribution to their livelihood is far less sure. Good luck to you!
Let me just add that you may not need to pay off your credit cards in order to increase your score, but you must get them down to less than 15% your total available credit to get the most credit score benefit. Let's say you have three cards. One has $500 limit, one $1000 and one has $2500. That would mean your total available would be $4000. 15% of $4000 would be $600. You will have your most points available credit wise if you have a balance of $599 or less. You may even have a greater benefit in carrying a low balance than in carrying none. Also, keep those credit lines open, even if you get mad at the creditor. Age of the credit line is a very important factor in determining your creditworthiness as well.
While "lease options" listings are rare in Berkeley, there is nothing that says when you go to find a rental, you can not ask the landlord if s/he would consider the possibility. Plan to offer about 10-15% over current market value for each year you wish to hold an option. You will most likely need a 20% down payment at purchase, due to the high cost of homes, and loan limits and you will likely be putting down at least $10,000 to buy the option. So the usual adding a few hundred a month towards equity, won't really make a dent. Rents are typically about $2 per square foot in Berkeley already, so base your rent on that, and add significant additional to beef up your DP a little bit. If you offered $4,000 a month for 20 months and $10,000 up front, that might be enough to get a landlord's attention, if they were already looking to sell and/or keep their owner's $250,000/$500,000 Long Term home sale tax exclusion. I would say 20 months to give them time to market the house, should you fail to perform within the two year limit.