All of these answers are very good and give you a great deal of valuable information. I am slightly concerned that your agent hasn't adequately answered these questions for you. I encourage you to ask if you aren't getting satisfying answers then look for an agent that does.
I am also mystified that no one is discussing short sales. Every seller CAN sell their home no matter what they owe if it is indeed necessary. There seems to be limited knowledge of the process and the impact it has on the sellers. Many in Colorado Springs are having to resort to those measures in all price ranges. I feel that it is beneficial to be certain that your agent is very knowledgable on the subject in this market. It is likely to be a factor.
If the seller is over pricing his home, he may not have the guidance available to make sure he understands what options are available. It isn't just the lower end homes that are running into problems. If your agent understands the market they will help you get a home at a price that will work for you in the long run. You do need to be aware of how long you will be wanting to live in the home. If it is 4 years or less, I encourage you to think more like an investor rather then a home owner. You will want to factor that into the price you are willing to pay. There are a lot of variables to consider in the current housing market, but these are also the markets that can produce the greatest profits too. There are many exceptional deals being made right now. It is truly a buyers market. Settle for nothing less then what works for you. There are too many choices available.