As previously mentioned, the existing bungalow is tired, but habitable. It's been extended before, but not well - essentially a couple of random lumps added on that, if anything, just confuse the layout and usability.
I've not viewed it myself as yet, but I'd guess the original construction dates from the 1950's. The current occupants have lived there for much of the time since, so a degree of sentimentality is understandable, but it's worth what it's worth, and the fact is it hasn't yet sold.
No doubt, with some relatively minor structural repair and modification, and a lot of cosmetic work, it would make a nice 2-bed bungalow for someone, but again, if the price were right someone would already have snapped it up to do exactly that (it's been on the market since middle of last year).
The garden is, like the bungalow, a little tired, but you can see it has been loved and is south-west facing and not overlooked from behind. There's plenty of parking at the front, and neighbouring properties have had fairly major remodelling into 1.5 or 1.75 storeys, so planning shouldn't be horrendously difficult. It just needs to be £100k cheaper!