If you view the property first before offering, then during inspection find something that there is no reasonable way you could've seen from the initial viewing, and then you want to ask for a discount or walk, that is a completely different matter and totally legitimate IMO.

The time, energy and money investors spend looking can out weigh any discount.

I believe I am getting a 8-10% discount ($50-60K off) from the FMV on this property and now not sure if it worth the pain to go through the process.  

In BP, most of the syndicators I know including ourselves look at value add like class B/C where rent disparities on 2-3 bedrooms vs class A are so great that if class A gets overbuilt the discounting in rents that must occur by those operators still do not compete w/the B/C property rents even after renovations are complete.

This is good.Also, a little backstory:  the reason I mentioned insurance, was a developer I worked with in Colorado finished a condo complex in the early part of the 2000's, when there was a rogue lawyer whose business  model was buying a condo, tearing into the structure looking for any defects (as minimal as sheetrock screws might be spaced @ 12" instead of 8"), then going after the builder, which of course was actually the deep pockets of the builders insurance company.  

Also make connections with local wholesalers as they play a major role in assisting you locating discounted deals.  

The seller discounted the price of house a bit but asked us to transfer the lease to us (they wouldn't take it with them).

If you buy properties at a discount like I do, you can use your purchase prices to significantly reduce those assessed values, thus reducing your property tax bill and increasing cashflow. 

Most banks are not set up to own homes, and are often motivated to sell you the home at a discounted price."

My plan is to get a discounted bid due to the proximity of the jobs and the work will keep his crew busy for the next 10-12 months.