In this economic climate you should be able to get a house for much less that the asking price. It's easy to get emotional and think that this is the perfect home and you have to have it but there are other perfect homes out there. It kind of sounds like the vendors think they can jerk you around because you're first home buyers.

If I were you I would call the agent and say that you have rethought and you are withdrawing your offer. Once you show that you're prepared to walk away you are bargaining from a stronger position. Go and look at a few other homes ask the realtors what offer the vendors would be prepared to take and then when the agent from the first place gets back to you (he will) you will be able to demonstrate that you have other options. If you re-offer a lower figure at that point you'll be more likely to get it.