Nothing is wrong with the arithmetic. The discount is the price of the buyer's required yield, and the balloon is doing most of the work.
Here's the mechanism. A note buyer decides what return they need, then discounts every future dollar back at that rate and offers the total. Run your file at a 12% target and the sixty payments of $1,320 are worth about $59,000 today, while the $171k balloon sitting five years out is worth about $94,000. That's roughly $153,000, or 85 cents on the balance. Run the same file at 11% and it lands nearer the 88% you were quoted. The face rate on the note is 8%. The buyer isn't accepting 8%, so the gap has to come out of the price.
Credit questions arrive on top of that, and so does the equity cushion. You sold at $200k with $20k down, so the loan is 90% of the price at creation. Note buyers care about that ratio because it's what protects them if they end up owning the house, and thin equity moves their required yield up, which moves your price down.
One option people miss when the full price stings: you can sell part of the payment stream instead of all of it. A partial purchase gives the buyer, say, the next forty eight payments for a lump sum now, and the note reverts to you after that. You get cash without selling the balloon, which is the piece being discounted hardest.
