I'd be suspicious of the engine not being overhauled already. He
probably just doesn't have the cash, but it's possible that the seller
found a problem so significant that he could recoup the cost of the
repair in the sale, and is trying to "dump" the plane unrepaired.

I'd consider offering the fair value of the plane minus the cost of
replacing the engine with a brand new one, or maybe contingent on
getting the overhaul. If the seller didn't like those ideas, I
wouldn't worry that I missed out on a great plane.