Isn't that just what you are doing? ;)
"£500? That sounds good. When can we have a meeting?"
I hate it when people think that I should drive for a couple of hours to have a meeting with them about their little project. They seem to think that taking the best part of a day to visit them for this is quite justifiable. This always a flag to me that the client is being unreasonable.
"I have applied for a grant from ... "
This is another indicator that the client may be a TW. But if they say, "I have a grant from ..." :)
I am in the UK and at the weekend I got an enquiry from a guy in Canada who wanted a database driven website to compare Widget providers in his region. Now I often get enquiries from other countries, mostly "price fishers" in Asia, to which I usually respond by telling them they can get the work done far cheaper in their own country. On this occasion I asked the guy if there was any particular reason why he wanted a UK designer. He said that he had came across my site and that, "He liked my style".
I told him that we would have to iron out a few things before proceeding but based on the information he had provided it would probably cost him about £1500 to £2000 ($3000 to $4000 Canadian). This morning I got a terse email from him saying that this was much higher than the sample prices quoted on my site (not true). I don't know what he was expecting but I am glad that he won't be back.
What you MUST do
I think the most important thing that you must do when pricing work is to clearly define the specification for the client's site and also your terms and conditions. It is better taking an hour or two to do this up front as it can save a day or two later on. I always make it clear to my clients that the site I am providing is detailed in the specification with which they are provided and that any additional work will be billable. (In practice I often waive this but I like to keep myself covered). I also tell them that sending me an advance cheque indicates that they agree to these t and c's.