First, factually in the period 6/1/2006 to 6/1/2007 there were 184 homes sold in the market area loosely called "Preston Hollow" with an average list price of $639k sold for an average of $613k or $217 per square foot on average. The highest sales price was $6M, the lowest $69k.
I say 'loosely' because there doesn't seem to be an official boundary for the area and anybody trying to sell in North Dallas might call his house as being in Preston Hollow. Originally, the town of Preston Hollow started around the corner of Preston and Northwest where Ebby has her cute little office and went north and west from there plus a little to the south and east to the Highland Park limit.
Now, many people refer to the area between 75 and Preston as Preston Hollow, and it does contain Preston Hollow Park. But, how far north can you go and still be in Preston Hollow? To LBJ? To Forest? Well, there are some very nice homes and estates in that northern area we usually refer to as North Dallas, but are they really Preston Hollow?
Only you know the address of the property you are considering and whether it will be near Geo Bush when he retires. Continuing with our story...
In the period 6/1/2007 to 6/1/2008 there were 149 homes sold in the same market area loosely called "Preston Hollow" with an average list price of $686k sold for an average of $661k or $230 per square foot on average.
Year over year, the prices increased by 7.8% on average. The selling price compared to listing price firmed up from 95.9% to 96.4%, which indicates solid demand even with the price increase of nearly 8%. The median price jumped from $485k to $545k across the same two years.
Second, to answer your question about how to take into account an apparent drop in values, while each property has to be evaluated individually and the situation on that property evaluated from the seller's perspective, you could just apply the 73.2% factor to the current value, not the listing price. For example, if prices dropped generally by 10%, you could take the current tax-appraised value and knock off the 10% and argue with the seller that prices have dropped by that amount. You will, of course, get push-back saying that the property was renovated or is not part of that market or some other arguably sound reason for not agreeing with your offer.
Cyndie's point is valid, too, that in a particular price range hypothetically the prices might be rising more rapidly or dropping in one price band while rising in another price band.
Unfortunately, the above-$500k homes went from $1.022M avg to $1.025M ($249 vs $258 /sf) in the same periods. So, the total prices didn't rise much on the 80-odd homes, but the price per square foot did.
So, without knowing much about the particular property in question, it would be difficult to give you a strategy because it would be against market statistics. Like Bruce says, You could try just saying the market is down and it is a good offer!