The conditions don't sound ideal, but.. in this case I would just follow your gut. Once you see a puppy it's hard not to fall instantly in love and want to take it home and I imagine you've probably already made up your mind. The mother is gorgeous (bathed or not), has really nice dark coloring and nice features (I couldn't make out the sire all that well in the pic).
Will you be signing a contract? Most breeders offer some type of health guarantee (1 or 2 yrs) against hereditary disorders commonly found in yorkies. Many breeders also include a non-breeding contract. It's good that she's giving you time to have the puppy checked out by your own vet (take a stool sample too) but what would happen if there is a medical issue with the dog? What would she do to compensate you then?
I find it odd that this being her first litter she is charging such a high price - is she an unexperienced breeder or is this just this particular female's first litter (you mentioned that she had two)? If she's inexperienced and has never bred, then how can she gaurantee that this puppy will be a certain size? And are her dogs champions?
I am not by any means trying to deter you from getting this puppy - I think he's a cutie! Just don't be afraid to ask lots of questions of her - make sure that you are covered if anything should happen. It breaks my heart to see so many people dealing with or getting ripped off by irresponsible breeders.
Good luck with your decision!
