You can ask for the Rolex plus cash, or he could ask for your IWC plus cash. You guys are free to negotiate and try to strike up any deal that you think makes sense to you. He doesn't have to agree to your terms and you don't have to agree to his.
In the end as others suggested, your best bet to maximize your watches value is to sell it yourself. A dealer will generally want to make money on the watch you buy and he will want to make something on the watch he takes in from you so he isn't going to give you it's full retail value.
Everyone can tell you how much something costs but surely it's a case of how much it's worth to you.
When is enough enough? Buy a bottle of wine and enjoy the watch you have!
My first Rolex was a Seadweller (double red) but I always prefered my father's late 60's Subamariner. We did a swap before the double red crazy thing began. I have never regretted the swap and I will inherit it back should I outlive him.
If I remeber James Bond nicely teamed a Submariner, Aston DB5 and English tailoring and it didn't look too tatty.
This forum proves the fact that on many occasions, money really cannot buy taste.
Certainly great advice to simply enjoy the watch he has. However, if it doesn't have the functions he wants or he just doesn't enjoy it, perhaps it's time for a new watch.