The guy emailed me and said he got a quote of $700 to fix the rust.
Using that info, I sent him the following email (offering $750 vs his $1800 asking price):
"I don't know if you're willing to negotiate, but Blue Book has this car valued at $1,300 in excellent condition. I think the car can actually sell for more like $1,500 in excellent condition. Using that as a starting point and considering the cost of repairs ($700 for rust + about $100 for a rebuilt/junkyard turbo), I would be willing to offer $750.
Based on those calculations and the Blue Book "fair" condition guideline I believe this is a reasonable offer. It's possible the car may be worth more to someone else that can live with the rust, but I would need to get it fixed."
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KBB private party "fair" condition says $770, so I think it's pretty reasonable.
We'll see.