To negotiate price,you have to discuss this particular property,not an overall average involving hundreds of properties. You can ask your agent to get that have sold in the last 6 months most similar to this one. One agent represents the seller,and another agent represents your interests as the buyer.
They will negotiate back and if you put in a ,written, non-verbal offer in contract form. Negotiation without a contract to purchase, and proof of funds,or a bank pre-qualification letter is pointless.
If the seller is not in trouble,they will not short-sale the house to you. If they are financially in trouble,than the price they paid 5 years ago doesn't matter,and it's today's fair market value that is the "new" price. At which point,they would need to get their lender to release the lien for less than the amount owned. Talk to your agent. He will educate you further. Hope this general advise helps.