I'd walk up to him and say "I'll give you $12,000. Take it or leave it."
...and then say "Sike!"
But seriously, 8500 is alot for anything with 260K on the clock, even if it is a toyota. Mine is a 2002 and it only has 60K, I keep it immaculate and maintain it like fluids are going out of style, and I drive like a 65 year old grandpa but I can still see a difference from when I bought it at 30K miles 3.5 years ago. Everything gets older and wears out. As far as the engine goes, I am sure it's not in bad condition, especially if it has all the records of maintainence because the miles are so high it's probably 90% freeway miles.
I think I would worry about the tranny more than anything, you could do a 5 spd conversion on it when the auto goes out if you are into manuals. I think a good price for it, if it's in pristine condition, is about 7000, 6-6500 if it's in pretty good condition.