I myself would pay MORE for that gun with the engraving, given the circumstances you mentioned, I'd even try and get a photo of the gun with the retired chief, and I'd create a short biography to go along with the gun, signed by the prior owner.
Guns on gunbroker with even a "Property of..." stamping from the local PD where they were issued sell for more money that those without those stampings.
I myself have a gun once owned by a retired detective, it has a few scuffs, and I think it's history makes it more desirable, at least to me it does. From the looks of what ex-police department guns are selling for vs. non PD guns on gunbroker (in nice condition), it appears that they are more valuable to a large group of collectors and not just myself...