There are two issues involved:
First, what is the house worth today, with the improvements? I can't comment on the Belmont market because I don't know it. However, in many markets that would be a steep increase in value. However, if they bought it under market value a year ago, then intelligently added some enhancements and upgrades, and if the neighborhood can support that value, then it could be worth it. On the other hand, if they bought at market value...if prices have remained flat or declined...and if they've been watching too many shows on cable...they may think that $250,000 in upgrades equals an increase in value of $250,000. It seldom does. Bottom line: You really have to have a Realtor familiar with the area run comps.
Second point: You ask: "Would it be insulting to offer 85% of asking?" Who knows? And, generally, who cares? Some people get insulted if you offer a penny less than the listing price. Some listen to Realtors claiming that houses sell for 97% (or whatever) of the listing price, so they get insulted if the offer is lower than that. It doesn't matter. And don't try to read the seller's mind. Figure out what the house is worth. Really worth. Then adjust that number depending on how much you like the house. Know what you can comfortably afford to spend. Then make an offer no higher than the lower of: (1) the house's value to you, after you know the market value, or (2) what you can comfortably afford.
Hope that helps.