First house offer rejected, what would you do next?

We are first time buyers, deposit and mortgage in place. We have been viewing propertys for about a month. We found a house in a good area, a little cottage in sound structural condition but that needs gutting/new kitchen/bathroom/replastering.

The owner has over valued the property we think, and has put it on the market twice to match two renovated propertys on the row.
The price is 112k, we put an offer in at 98,750k after working out how much the work would cost. This was rejected yesterday, with the estate agent saying hes very interested and very negotiable… And dont think youve lost it but the offers too low.

What would your next move be? We can afford to pay 105k but i dont think its worth that its condition. I have a feeling it the first offer the vendors had in a while, and is saying no because its our first offer.
I dont know what to do?

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