My offer on a REO was rejected as too low - the issue with the townhouse is listed at (1)"system did not hold pressure due to damages, unable to find source of allleaks, water heater damaged at side where TPR valve damaged" and (2) "Water Supply and Sewage system was inspected for presence of obvious visible defects.

Occupancy has improved a lot since then. 5% actual with 5% economic might be more realistic for 2016. incremental rent growth after the property is stable is 2%I think we can safely assume a 3% growth rate going forward due to high demand and low supply (depends on your area). 

Don't assume your tenant will do that for you even if you leave a supply of filters onsite. 

The months supply has also gone down.

No negotiations can occur until after it is listed,the owner supplies all the required short sale documents, and a purchase agreement with a buyer, that the bank deems legit (POF, etc.) is submitted.  

There is not a great supply and they are also higher priced.  

They buy parks that supply water but turn that around over a period of time and make it a tenant cost.

If you are supplying the materials , you hired labors , plain and simple .

The high prices are simply because of supply and demand. 

Last, attend any building supply auctions and pass out flyers.