Frank,
As you suggested, buying used will get you a lot more bang for your buck. Look for guitars that had an original MSRP 2 to 3 times your sister's budget. The simpler and/or plainer models with less bling will give a better guitar for the money. Look at only solid top guitars and preferably solid b/s, too. Avoid cutaways and electronics, they cost $$ taking away from the overall quality of the acoustic guitar.
If your brother-in-law only played electric guitar in his band and has no experience with acoustic guitars, then maybe a make or model with electric guitar like specs may be a better fit. Such as small or thinner body, narrow nut width, lower action etc.
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