David,

I guessing that this is a Breeze, or similar model. The cost to fix one up is greater than the worth, even in my market.

Honestly, free is about the right price, no more than $10 if the paint and fenders are good.

The LBS owner was wrong to try to get it for nothing in order to flip it, but if he said something along the lines of 'It's not worth fixing, but I'll take it off your hands', well then, that's okay.

The alternative is he could have charged her over $200 to refurbish a $100 bike.