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You need to remember that recruiters get paid a high percentage of their wages through commission. The recruiters job is to get you from just a CV, to interviewing and hopefully joining a company.

90% of the time, they are only there to try and fill a role that the prospective employer has open.

If the recruiter is still in contact with you it is highly unlikely he is "wasting your time". However, as for the job, it isn't worth taking for the huge loss you are going to take plus the low salary simply for "passion". Sometimes you have to make the "smart" decision not the one you want to make.

They've already stated that there is no salary negotiation and they are clearly not willing to improve the relocation package, to me this should be clear indication to walk away.

My question is, what is the next step in this negotiation or is this
where I decline the offer and walk away?

If you are firm on what you require, and you believe they are firm on what they offering that doesn't meet your requirements, then it's time to walk away.

If you think they still have room to improve, then state your requirements one more time, indicate they are final, and be ready to walk if they can't meet them.

The key is always knowing what you require ahead of time.

You say the salary is $8k less than what you'd be happy with. You also seem enthusiastic about working for this company, so I'll assume it's a reputable one.

Given that $8k is likely around 5-6% of the salary (assuming a tech role on the West coast), I see no reason why they wouldn't match your expectations. Is it possible to contact them (the hiring manager or HR) directly, and explain the situation? To me it seems like the recruiter is the obstacle here, perhaps this is an unusual setup where xe stands to gain from you taking the lower offer?

First, recruiters generally get paid a percentage of the candidate's annual salary. The percentage itself is usually on a sliding scale: the higher the salary, the higher the percentage.

Second, recruiters don't get paid if the candidate doesn't take the job. Obviously.

Third, recruiters generally don't get paid until the candidate completes some amount of time, usually a year, on the job.

All of this means that the recruiter has a VERY strong incentive to get you the best offer he can, and the best deal, because it is money in HIS pocket to have you take the job AND be happy with it. At the same time, he does have to work with the client company, because they are his customer, and he wants to keep doing business with them.

With all that in mind...

Something does not feel right about all this.

The company knows they are in a high cost-of-living area. They have been looking to fill this job for a year (supposedly), which means they are having REAL pain, and they probably already know they are not offering enough money to attract the candidates they want. The recruiter knows this also: You are almost certainly not the first candidate he has sent them, which means that you are probably not the first one that has turned it down because of the money. (Yes, it could be that you are the first one they liked enough to make an offer, but that is HIGHLY unlikely after a year.)

If the other guy is correct, that the salary difference is only 5-6%, then something is very wrong. They should have no trouble at all covering a 5-6% difference.

I'd suggest calling the recruiter and explaining that, at this point, it appears that you and the client are just too far apart on salary and relocation. They appear unwilling to move, and you already detailed your minimum requirements. Thank him for his efforts, and wish him luck.

Then end the call.

One of two things will happen. He may go back to the client and get them to offer what you are asking, or he may not. If he does, and they strike their colors, you win. If he doesn't, or if they refuse to move, YOU HAVE NOT LOST: you have quite probably dodged a nasty bullet.

My personal feeling is that you won't lose anything by turning this one down. If they're having problems now, they're going to have problems in the future, and the problems will likely get worse instead of better.

If the position was already open for a year, then they're offering inadequate pay and others have certainly rejected the offers too. I would also take with a grain of salt what the recruiter said about someone else taking one of the jobs for that pay, with a family of four. It sounds like used car salesman talk---i.e., a conveniently-timed lie just when you are ready to walk.

There are damn few jobs for average blokes where there is high demand like in your field with your skills. You should flat-out reject their inadequate pay and play the field some more, as others do successfully. One thing I've learned is that companies won't pay you a good salary out of the goodness of their heart. They'll do it if they have to, either on an individual basis or from deciding at the outset that the industry demands high pay and they decide not to fight it. It is miserable to be in a constant battle with your employer. If you have to go through this kind of trade-off agony just to get the job, my experience tells me that there will be other "trade-offs" that you just won't be able to refuse on this job. They will milk your "passion" and you will never, ever make enough money to feel satisfied. Keep looking.

A higher cost of living is not always a deal breaker. Sometimes you get a lot more for that higher cost, and that's precisely why the cost is higher, because it's a better location all around. It seems to me you're fixating on the wrong priorities here, a desirable job in a field you will subsequently be able to work in, in a more desirable area, might be worth more than a little financial outlay on your part. Especially if you're ruminating bitterly about your divorce, a little change of air might be a very good thing. It's not all about money.

Based on the details in your question, it seems like you will be ok with the salary and can afford the move, so what's really going on here is you have a bad taste given the discrepancy between the offer you received and your initial discussions with the recruiter (and maybe also a negotiation whose tone has turned a bit adversarial). Unlike other answers, it doesn't seem to me that your "requirements" are do or die. They're just what you feel you deserve, likely representing a premium over your current compensation factoring in the higher cost of living.

This is what I would do (heck, what I did).

Depending on your level of communication with whomever is in charge of setting or writing you up for pay increases, informally or in writing, agree on a performance review in 6 months where if you're doing well, you'd get bumped to the pay you want. If 6 months is too soon, then at the annual review, the expected pay increase for good performance should take you above your current expected level.

Then take the job and pay the additional moving expenses yourself. In my case, I moved to a higher cost city with zero savings (and a lot of debt), got some relocation, and borrowed the rest that I needed from my dad. Pay wise, things worked out much better than I could have predicted. If the job and team with whom you'd be working with are things that ring the bells for you, I wouldn't let what's objectively a minor amount when you look at net compensation be a deal breaker, especially if you can negotiate now to have the issue revisited/handled within a year.

If you're still not convinced, try this thought experiment: Imagine that you turned down this opportunity, what's the expected time until you'd get another like it, assuming you'd get the pay/relocation you want the second time around? 6 months? One year? Five years? What's the delta in expected net compensation (factoring your higher cost of living of course) over X years between staying where you are now and taking this opportunity and how does that compare to $10k? In my case, the difference was erased in barely a year.