Don't worry about insulting the seller. (Unless your name is Emily Post.)
First, determine the real value of the house. Second, determine what amount of mortgage you can qualify for. Third, determine what levels of payments you'd be comfortable with. Take the LOWEST of those three numbers: Value, mortgage qualification, comfort level. That's the most you should spend on the house.
Only then look at the asking price. If the asking price is higher, ignore it. If the asking price is lower, then you lower the maximum you'll spend on the property to the asking price. That, again establishes your ceiling.
Now: Offer that number, or something below it. How much below it? That's up to you. Something in the conservative range if 2%-6%. Something in the aggressive range might be 10%-20%. But, remember: We're talking about your offering below your maximum allowable amount, not necessarily the asking price.
As for insulting the seller: If the seller's overpriced the home, did the seller worry about insulting you? I don't think so. How about all the people who viewed the home and then didn't even both to put in an offer; did those people worry about insulting the seller? I don't think so.
Besides, you're not a mindreader. Some sellers will be insulted with an offer one penny below their asking price; they already feel they're "giving the house away." Other sellers would be delighted with an offer 20% below their asking price. We already figured out that you're not Emily Post. Well, you're not the Amazing Kreskin either. You're just a guy trying to get a good price on a house. And that's fine. So: Follow the steps above.
Hope that helps.