You can haggle with hotels. I don't know how common it is today with on-line booking but it was very common before all the booking service came on-line. If the hotel has a lot of vacant rooms, they would reduce their rates to fill those rooms. I have worked at many hotels and they all where flexible with the rates. I think today the "smart prices" does a lot of that for the clerk but I would think most would still be willing to work with you if they had rooms that was going to go unrented.
I would argee with you.. I wold not accept this reservation.. I think the host would be inviting problems. This is not one of those cases where I would haggle. The offer of $50.00 on a $135.00 rental says a lot.
I don't understand why people think just because they have an unexpected expense that the host should lower their fees, the power company will not lower their fees because the customer had a guest who attended a funeral. The insurance company doesn't care and will not reduce their rates.. the cost of renting the room remains the same no matter if a funeral in involved or not.