To put things in the proper perspective, it appears to be a 1986 model, which would have originally cost $499 US. Components, tubing and build quality were very good on these models. It's pretty much the perfect bicycle for your intended purpose, provided it's the right size and has not been abused or worn out.

I'm not familiar with the market conditions in your area, but the price does seem a bit high, especially given the time of year. But at least he seems willing to negotiate somewhat. Assuming good condition, I'd shoot for $150 and top out at about $200.