Beautiful Home in Need of a TON of repairs

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Hello BPers,

I have found a property that I believe would be an amazing flip, but the seller is unrealistic on what he could get for house in its current condition.  

Here is a little background:

1) Seller asking price: $375,000

2) 6 bed/2.5 bath on a historic street, neighborhood is great, schools are marginal.  Lot size 1.26 acres with mature trees.  Condition: awful, built in 1926. The house would essentially need to be gutted.

3) The owner passed away and her 3 children are wanting to get rid of the house.  2 of the children want it gone, but the third is holding out on his unrealistic assumptions.

4)  House (built in 1917) nearby is listed at $525,000 with 7Bed/5bath on 1.4 acres in "move-in ready" condition with a pool in the backyard.  This house has been listed for just over a year and was originally listed for $565,000.

5) House directly across the street just put on a $300k addition. 

I have not hired an inspector or a project manager to help me estimate the cost of repair as I am just identifying the potential of the project.  Let's call it $150,000 for this exercise. This is assuming asbestos and lead based paint remediation.  

I think the house would easily sell for $450K-$475K once repaired based on the location and the comps mentioned above in 4 & 5, but am not sure how to approach the seller with an offer of no more than $165,000 (based on the 70% rule arv:$450K). 

I would like to lock up this house and then get a contractor in to really understand what needs to be repaired, but can't imagine the seller allowing for such a price cut.  

Any insight or strategy would be greatly appreciated.

Thanks!  

Andy