So we countered the sellers counter offer and eventually turned down the seller's second counter offer. Bummed?? Not at all! We were interested in the house for a short term home only for a certain price (which is a very fair price for the house and area) but the sellers weren't willing to take it so we walked. I am somewhat happy b/c it was going to be a lot of work to get moved in so soon. Would I have gladly done it? Of course.
So the house hunting continues. And thats ok.