The seller wants the declared property price to be less than what I'm actually going to pay. Should I do this?

And the broker tells you this is common practice, right? In truth, it's a known practice (known as Black Money), but not so common.

Avoiding capital gains tax

What is happening is that the seller wants to have less capital gains so they can pay less taxes. The problem for you as the buyer is that when you go to sell the property down the road, you will then have to pay more capital gains (unless you also find a buyer willing to make this deal).

You will pay in taxes all that the current seller didn't pay. So why would anybody accept this? It's because some people in Spain have a sizeable amount of money tucked under their pillow that they never declared as earnings to the tax office. Giving this money as cash to the seller effectively launders it. If this is not the case with you, then don't make a deal with the seller. In fact, this should be made clear in the pre-agreement, so the seller doesn't try to force in this provision a week before the closing.