Here's a thought......recommend that the owner have the property appraised and possibly suggest that you will pay for this service if you reach a successful agreement. This way there is an impartial resource providing information about the home's value and you will hopefully be able to get them on track.
Another possibility is contacting an agent yourself and telling them you have interest in the subject property. They may be able to advocate for both you and the seller. Agents often contact FSBO's when they have a potential buyer.
Good luck to you,
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National Association of REALTORS just released an updated study on 'For Sale By Owner' properties. Their startling result was that only 9% actually are successful in selling their home. Of that 9%, fully HALF of them already knew the Buyer - family or friends. So that means the real number of successful sales to unrelated parties is 4.5%! I wouldn't bet on those odds. Some try to sell it ecause they calculate that they can't afford to pay an agent and the lender's balance. They don't know about Short Sales, and they wind up as foreclosures.
Typically, people who try to sell their own homes get their pricing information frm friends and neighbors as you suggested. Or they go to Real Estate websites which claim to "estimate" the market value. The numbers are almost always way off. Or they try to value it based on some sort of cost recovery calculation. The only number that means anything is how much is a Qualified Buyer willing to pay.
The neighbor may have LISTED their home at $XXX, but they might not have told your Seller that they discounted it and threw in Buyer Closing Costs. Your Agent can find out those things. Your agent can also protect your interests by checking the details, disclosures, etc., and making sure the contracts cover all the bases.
Your situation is a little confusing. Are you a Seller? Does your potential Buyer have a home to sell?
I have found that getting advice from friends and neighbors about Real Estate is just as effective as getting Medical and Tax Advice from them. Here's a recent blog that explains what Buyers Agents do: http://www.trulia.com/blog/ellen_doc_stephens_realtors/2010/
Looks like both of you need some competent professional help before serious errors or problems arise. Check out http://westbankliving.com/
Assuming you mean seller, I would suggest to him to look at the most recent sold comparables. What homes are sold for is public record. That would give an idea of what people, as of today, are willing to pay for particular homes. This changes which is why the most recent ones are the only ones to pay attention to.