How about an LOI based on ACTUAL property financials?

[Marc C.]

About to write an offer on a 32-unit in Colorado. Mom-and-Pop seller with bad records, of course. I have a rent roll and 2015 expenses for maintenance, supplies, management, and utilities, which equal 63% of rent rollx12. 

Property manager tells me that, based on income, no way it's worth the asking price. Problem is, seller has 2016 appraisal that says it IS worth the asking price, based on 8% cap rate. However, the appraiser used an average expense rate of 43%, when the actual expenses are more like 63%. (The property is older and maintenance costs are running about 12%. Seller also pays for gas heat.) As a result, there will be negative cash flow at the appraised value (esp. after property tax reassessment). 

WHAT to offer? I was thinking maybe I make the offer (LOI) near the appraised price, to get it tied up, "or the property's 2016 net operating income divided by .08, whichever is lower." And then define NOI according to IRS Schedule E ("Line 21 less lines 12, 13, and 18"; [interest and depreciation]).

Anyone ever done that? I could also try to educate the seller by showing the appraiser's error in calculations of NOI and how they aren't near what his 2015 expenses were.

Any other ideas on how to handle this?