Take the bike and the prospective new owner to a bike shop. Have them verify that the bike is the correct size and get a written estimate for getting the bike into perfect riding condition, including the shifting, the braking and a wheel truing. Subtract the cost of reconditioning from $250, and the difference would be a reasonable price to pay for the bike.
The original owner might be unhappy if the reconditioning estimate is $100, and you then offer $150 for the bike. But, when you look at the price the five and ten year old bikes are selling for at pawnshops, Goodwill, Salvation Army, yardsales, Craigslist, etc., it is clear that an older bike in less than "like new" condition sells for far less than the original retail price.