Your price is reasonable and fair. John's declaration of $15K for his 870 is more about the value he assigns to his copy of one of the best machines Case made. I too have a couple of tractors I value considerably above normal market value. That being said, I would offer that John may have a hard time finding a buyer that would assign the same value to an 870...no matter the condition. If that buyer can be found....we have several more "opportunities" for him/her.
There are a number of things that will influence the value of your your Grandfather's 870. Has it ever been overhauled? At 7200 hours you may have a couple of thousand dollars (at a minimum) of expense in your future if the tractor has never been overhauled. Does it have a cab or is it an open station? What condition are the tires? Has the hydraulic pump been replaced. If equipped with Power Shift, does the power shift work well? You said it has been kept inside, but what is the condition of the tin? Is any of it missing? Is there any surface rust? When was the last time the fuel pump and injectors have been serviced? As you found with your DC restoration, it will be very easy to get at least another $1000 (probably a lot more) invested in your new find.
Bottom line is there are many 870s out there worth much less than $3500, and a few that have been restored or maintained very well that could be worth more than double your price.
One last thing. You are right to be concerned about being fair to your Grandmother. She deserves no less. That being said, I would guess she wants YOU to have the tractor. Talk to her and express your concerns, and then listen to her..... - Joe