That's about what they are selling for. Kelly is all but useless for motorcycle prices. You best bet is to look on ebay under completed auctions and see what the actual selling price is. Condition and the way a bike was maintained makes a huge difference. The '98 could be a total rip-off at $3,500 or it could be a steal.
One of the nice things about getting a used bike at a good price is that if you take care of it, that Spotster will probably still be worth $3,500 in a few years if you want to sell it.
Just be sure the bike is mechanically sound and I would feel perfectly comfortable paying that for it.