First, be very careful with a realtor that is connected to your family. Might be helpful, might hurt, just be careful. I don't trust realtors at all, so I ignore everything they say and just figure out my plans on my own and have them implement the plans. I suggest that route, listen respectfully, but don't let her sway you in what your plan is.
I would go with the low offer. If they are insulted they will likely not respond at all. If they are not insulted but think it is way too low, they will respond with full price counter, which is how I respond to a low ball offer. Either way you learn something about the bank and get something out on the table. It gets them looking into the house and figuring out where they are in it. I don't see a down side of a low offer to a bank, it is all play money to them, nobody is personally out money so feeling are less relevant.
Once you get the bank interested, make sure you get an inspector in the house early. I wouldn't wait for an accepted offer, I would bring an inspector in during a visit and have them look things over. It is easier to find problems and negotiate a lower price before having an accepted offer, than trying to lower the price after an accepted offer based on the inspection. And better to know really well what you are getting into. (If you don't want to pay an inspector, find a carpenter/contractor you can trust, anyone who knows houses inside and out and can double check for things you miss and help give rough numbers for repairs)
Best of luck, sounds like a great possibility!