My humble opinion. Offer the lower price. The worst is he she can sasy is no. Besides it is a down market and there is plenty out there. And in my opinion we have another 90 days minimally, if not years, of a down market. Stay cool.

Lindsey,

I completely understand your point of view. You need to ask yourself a few questions first. If you do end up purchasing this home, do you plan to sell next year or the year after? I ask this because unless you plan to sell or your getting in over your head and will need to sell (based on your down payment and credit scores it appears your a responsible borrower) then it doesn't matter what the property is worth next year. As long as you plan to be in the home for some time, the market has historically ALWAYS rebounded. Its just a matter of how long.

Second, how badly do you want the home? If this is the "perfect house" then its sounds to me like you really want this home. Based on your research you know the home is already worth more than the asking price. So my recommendation based I what you've told me thus far is make a more reasonable offer (say 10% below asking price). You are much more likely to get a counter offer and still get a discount on what appears to be a reasonably priced home. I also recommend you make your offer contingent upon a home inspection, just in case there is something major that you're not aware of. Best of luck!