If you want to play hardball, try these steps:

1.  Get a buyer's agent, and get your agent to draw up some short-horizon offers.
2.  Go to your county website and find out what the seller paid for the home, and how much they owe.  This may tell you if they are facing an ARM increase and how much equity they hold.
3.  Especially if their equity is low and their payments are high, offer slightly more than they paid for the home -- just enough for them to cover their debt and walk away from the deal feeling as if they didn't lose money by owning instead of renting.  Forget calculating your lowball based on the list price or appraisal -- instead, start at the bottom of the seller's reference point, his investment, not his hoped-for return.
4.  Take advantage of fear in this market by establishing a 48 hour deadline on your offer.  After that, make a similar bid on another property.  Keep going until somebody bites.  You won't strike out too many times before you hook one.