I am not a Real Estate Pro, I am just an interested observer. That said, I think you did the right thing by not countering and deciding to wait, watch, and continue to look elsewhere.
You based your offer on recent comps, and that seems to be reasonable, yet the general response that you've received here seems to be that you are lowballing? The article that Tameka links to specifically says that the Philly area/suburbs are still 10% overpriced, that there is nearly a $40k difference between what people list for and sell for, and that especially the suburbs have a lot of overpriced listings. I think that article supports your decision to base your offer on comps. Also, an Inquirer article did recently state that Philly foreclosures are way down year over year- and then says that Philly put a temporary mortitorium on foreclosures and initiated a program that lengthens the time it takes to foreclose! Well, duh! Mark Zandi of Moody had this to say about Philly's decision to put a temporary mortorium on foreclosures: "Foreclosure moratoriums are delaying, and not forestalling, foreclosures." I put in the link to the article below.
Lastly, I find it really interesting to watch the back and forth between Realtors and buyers and Realtors and sellers on Trulia Voices. I think it is a great resource! When talking to sellers, Realtors tend to say that the seller probably has to lower the price; when talking to buyers, Realtors tend to discourgage low balling and encourage bidding higher. (This is just a generality; there are many Realtors who go against this trend, especially for buyers, you can see it in this thread).
I think this probably reflects that sellers tend to have unrealistically high ideas of what will sell, and buyers have (maybe?) unrealistic expecations of the price at which the house will sell. For what it's worth, I think the buyers definitely have the upper hand, and no one wants to catch a falling knife. I suspect that you have a lot more to gain by waiting. I am not in KOP, but in my little 'burb between Philly and Allentown, I see a whole of For Sale signs, quite a few Price Reduced signs, but very few Sold signs. This suggests that prices still have further fall or something else has to happen to reduce the inventory until some sort of equilibrium is reached.
I just wanted to be at least one person here to say, Good Job! You made a fair offer based on sold comps, and walked away when the seller wouldn't play ball. There are many houses for sale, if this one doesn't work I am sure you'll find another one you like just as much or even more. You've already seen other great homes with more space for less money, so you know that you won't be stuck if you don't overpay for this specific house. You kept the golden rule of investing (Don't get emotionally involved!) Well done!!