I'd be concerned about buying a used guitar. Those things start to wear out after a lot of heavy use. After a while they start missing notes occasionally. We've fixed ours a couple of times but eventually it's easier just to get new ones. I suspect some people trade theirs in when they hit that point. To me, it would be worth paying a little more to get a new one.
OP, that isn't a bad price. I've seen better but I've also seen worse. If more than one person is going to want to play at the same time, you'll also need to get another guitar, a microphone or the drums.
We have it, though ours is for the XBox 360. We like it, but we prefer the Rock Band games over the Guitar Hero games. The lyrics aren't always totally family friendly, though, so you might want to look through the track list to see if the songs are ones you'd be okay with your kids singing. The worst of the words are usually censored, but there are quite a few that wouldn't be allowed in schools that aren't censored.
If you are interested in a more family friendly game, I'd recommend
Lego Rock Band or Beatles Rock Band. Band Hero is also more family friendly than the Guitar Hero games, though I found it to be more challenging than the Rock Band games.