The Hammers had been hoping to bring in the AC Milan hitman as their major striker coup.
The Hammers had looked set to sign Bacca in a major coup for the Premier League club as they look to bring in a top-class striker to boost their top-four challenge this season.
The Colombian who scored 20 goals in 42 matches in his debut season at the San Siro last term was thought to be heading to the Olympic Stadium in a £26 million deal.
However, according to La Gazzetta, the 29-year-old has been put off the move to England as the Hammers have failed to offer him the wages he was looking for, despite Milan being ready to accept the Irons' bid for the star.
The Italian outlet claims that Bacca was hoping to be offered around €5 million (£4.2 million) per year by West Ham, but that the London club have only be willing to stretch to €4 million (£3.3 million).
That difference between the two parties may have left the deal on the rocks, and La Liga sides Atletico Madrid and Valencia are now looking to capitalise on that snag by luring the former Sevilla hitman back to Spain.
Bacca scored 49 goals in 108 matches for Sevilla in two years in Spain prior to his move to Italy, and is thought to be keen on a return to La Liga if West Ham are not forthcoming with a suitable offer.
For West Ham, missing out on Bacca would be a huge blow after their failure to capture other high-profile strikers such as Alexandre Lacazette.
However, it is thought that the Hammers will continue negotiations and attempt to reach a compromise with the two-time Europa League winner.