Tell them, and if they give you that 'you could have got one for $150', just say, "then I'd have a crappy bike." This conversation reveals more about the asker than you. Remember, cheap bikes are for cheap people. Both of my ride buddies could not get their heads around spending more than the cost of Wal Mart bikes. Both were so entrenched on price that all mention of quality was not heard. This is because the cheap ones have two wheels and actually roll. Theyn think; what more could you want?
One finally upgraded and was totally happy with it. (Trek 7200). I gave the other one a new Trek 7500 that I bought for my wife but she didn't want. Now he's happy too.
Lesson; Some people never learn, unless you give them a better bike. So, keep quiet on this one. It could get expensive. BTW, the hardest ones to convince are the retired ones who are on a fixed income. bk