This is Don Tapperâ€™s fair offer price model. (Dan is a fellow Realtor who posts on Trulia often).
1. Have your Buyer agent check the RECENT comparables.
2. Select the lowest number from the following three: (1) comps, from a CMA, (2) what you're preapproved for, and (3) what you're comfortable spending.
3. Then look at the listing price. If it's higher, stick with the lowest of those three numbers. If it's lower, drop your maximum down to the list price.
That process gives you the maximum you can spend on the property. Offer less.
Whether that number is 20% below comps (what would generally be considered market value) depends on the other numbers (prequalification, comfort level, and list price), as well as how aggressive you want to be.
Be sure to check comps - even if only to avoid OVER paying. Best of luck!