Ultimately Mark is absolutely correct. The question really comes down to are you looking for a steal (read that bargain) or to pay a fair market price for the home. Market price is determined by what comparable homes in the immediate area have sold for in the last 6 months or so. This determination while reasonably scientific can be subjective, but it will be the basis for a financing appraisal when the time comes.
There are a few things that will impact the purchase price of the home. Not the least of which are how desparate is the seller to move the property and get on with their life. How much do they still owe in mortgage(s) on the property. If you offer $125k and they are willing to accept that amount to get a deal done, if that amount is insufficient to pay off the remaining mortgage, it may prevent the sale.
If you really want the property and you feel that is what you want to offer, go for it. Even if the offer is rejected it may prompt a counter offer or open a dialogue that will help you understand just what the seller's bottom line is. One recommendation I would make is for you to formulate in your mind (on paper is better) a couple of "what if" scenerios. Example.. What will I do if I offer $125,000 and they counter with $135,000? What will I do if I offer $125,000 and they don't respond at all? Pondering these possibilities in advance will help you to prepare psychologically for your next move and by starting now you have more time to consider how you can best respond to various possible responses.