Would you buy a piece of gear with a defect?

If you have the relevant DIY skills, maybe yes.

Although only 400 off a used comp for a unit  non cosmetic damage seems high to me as others have noted.
(Cosmetic damage is another matter, and I'm I'm happy to buy discounted items where that's the only issue)

If you are not DIY, note that finding a competent tech can be difficult, and some problems will vex even competent techs.  And in any case it won't be free, which is likely to eat up a good hunk of any savings.
Early in my time in the hobby I bought an Adcom GFA-555 from a friend.  It sounded like they sound, but had a buzz (amusingly, his cat puked on it, and gunked up one of the boards, through the vents). 

I took it to the only local tech I could find (in St. Louis, a pretty large metro).  Twice.  He claimed falsely to have fixed it, and was abusive to me in front of other customers on the return visit, when he denied hearing the fault.
I then, with a bunch of hassle, got the schematic, and a friend who is very smart electrical engineer went through it.  He couldn't fix it either.
So ton's of headache, and no cigar.
If you are not DIY adept with electronics, I'd pass. 

I do,  I normally look at what the repair would cost from a reputable shop, then offer according to about 15 to 20 percent below used market value.  Then I do the repair myself. 
In my opinion to buy something and go through all of the time and trouble to get it repaired and not come out ahead doesn't make much sense, unless of course, you are obsessed with a certain piece or they are just near impossible to get.   Good Luck 

Depends on why you are buying or selling the component. I am currently selling an non working Sony SCD-1 for parts as it appears the laser is dead and parts are unavailable. I have also tried to purchase a working unit to fix mine but not willing to pay the prices folks are asking. So if I can sell mine for parts to someone to help them out then we both win. 

Chuck 

Cosmetic maybe if minor, functional no!
Damaged goods are a possible gateway to more trouble.

I wouldn’t buy modded gear either. They would have to be designer approved and there’s not many of them.

I still recall all those Linn Naim mods from the 80s/90s.

What are they worth now?

you have to give yourself financial room for the worst case scenario for repairs.  I like the suggestion of offering 1/3 of what they sell for in very good condition.  Typically many already had it evaluated and know exactly what is wrong with it and how much it would take to fix it.

Another suggestion is to tell the seller to get it evaluated and get a price to repair it and offer to split the cost to repair it.  

Take for example a Mark Levinson 23.5 amp. There is a very good history of what the used price is for a good working unit.  If one channel is out, The price to diagnose and repair can be substantial, depending on what is wrong.  But, if the sale price is low enough, I would jump on that unit in a minute and fix it myself or send it to George Meyer AV in LA and have them fix it.  However, then you also have to consider whether the caps should be replaced also.  

I think the price of the unit is question is too high for one that isn't working and also since I have no clue what is exactly wrong with it and how much it would take to fix it. So, about $1000 or less for that non-working unit sounds right to me.

enjoy