According to talkSPORT, Real Madrid will demand £24m for the Spanish forward although they're willing to do a deal for between £14m and £20m if Arsenal agree to a buy-back option.
Real Madrid boss Carlo Ancelotti admitted that Morata is free to leave the Bernabeu this summer, with Arsenal, Juventus, Inter Milan and Wolfsburg all reportedly interested.
But the Spanish giants are fearful that the decision to sell Morata may come back to bite them in the future and they want a buy-back clause as an insurance provision.
The report claims to have Madrid's stated buy-back terms - they're willing to re-pay the full transfer fee plus 30 per cent as the insurance premium for the right to buy Morata back at any point in the next two seasons.
So if Arsenal bought Morata for £20m, and Real Madrid decided to sign him back after two years they would have to pay Arsenal £26m for the privilege.
It's an interesting proposal, and one seemingly popular among Spanish clubs - Barcelona had a similar agreement regarding Bojan.
It amounts to what is basically a two-year loan with the selling club happy to pay a premium for the rights to sign their player back. But the problem for Arsenal is, if Morata works out as expected and he scores lots of goals then Real Madrid will want to sign him back.
The talented 21-year-old is clearly a forward with the potential to play Champions League football for a top team, but he has found it difficult to break into the ultra-competitive Madrid set-up.
At a £10m discount Arsenal would be advised to agree to sign Morata - £14m for the Spain under-21 international is a relatively low-cost gamble even with the threat that Madrid could snap him back up at any point.
At the upper end of the valuation though, £24m sounds like far too much for a player unproven at the highest level. The job for Arsenal scouts is to project how good Morata could be if given a regular run in a talented team.
From the small evidence base available, he looks like a natural goalscorer with all the attributes to succeed in the Premier League. But for £24m, it's still a gamble. Look at the alternatives - £8m for Premier League goalscorer Loic Remy or £20m for Champions League winning Mario Mandzukic.
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