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I would deduce that if they have dropped the price by £20k your offer hasn't been accepted. Presumably the drop is to see if they can stimulate any further interest.
Depending on mortgage length and interest rates I would think the extra £20k equates to about £100 per month in mortgage repayments. If you can spring to that, maybe worth offering the revised asking price to get it off the market?
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I think you're right about the offer but we'll see what they come back with. I'm tempted to let them struggle for a bit longer and if no offer then they'll crack and come back to us. If we don't get it fine, because it'll be a lot of work anyway. I'm seeing another house this weekend that would need absolutely nothing doing to it and although being opposite a small park isn't in such a good location.
Sumo
The house we offered 40k under has now had a price drop by 20k, although we're yet to hear a response to the offer.