eee!

I've been away, so I've been reading but not getting a chance to comment. Anyway...don't sweat it. This is what real estate negotiations are like, and you can analyze 'til the cows come home, but you never really know what's in people's minds, because emotions and egos are tied up in it, often much more than logic, so people do all sorts of wacky things. One of my best friends is a longtime realtor, and she sees it from both sides, seller and buyer. There's still plenty of hope for you to get this house, but if you don't, well, there's never just one house. Now you and your agent have a better idea of what you like, and she can focus her search even better from here on. Also, at least around here, you guys are prime buyers, because you're ready to go and your offer's not dependent on selling something else first, so that'll work in your favor.

Good luck!