The 22-year-old, who has played for Spain’s Under 21s in the past, has been building a reputation playing for Real’s B team in the domestic third division.
Joselu is under contract until June 2014, but he is attracting interest from Hoffenheim and the Bundesliga club could be prepared to offer him first-team football.
However, Hoffenheim manager Markus Babbel is less than impressed with Real’s initial valuation of at least €8m and does not want to continue talks until the Spanish club reconsider.
Former Liverpool and Germany defender Babbel told Deutsche Presseagentur: “A transfer fee of €8-€10m for a third-tier player is absolutely inexplicable. This is too much. The deal is off.
“We are still interested, of course. But we are initially bailing out of this. Should Real Madrid be happy with less than that (fee), they are welcome to give us a phone call.”