Sorry this is long! I wanted to make sure I explained buying equipment in detail a little so it was easy to understand, or at least easy to ask questions about.
Adding to character creation. Think of the coin as a quest accepting reward, not as starting coin for your adventure. Every character would have their equipment, because in this world it is normal to have some sort of armor/weapons/etc. You may not have it on you all the time, but you do have it somewhere, in a chest at home or under your bed or something.
Most people are armed here because of the dangers that have come up recently. Ogres are more likely to attack towns, kobolds have started to sneak their way into towns and steal things, goblins are causing more ruckus than usual... That sort of thing. Your character being built reflects those things, or I would have been more specific about character creation - things like, you can only have one simple weapon or one of the bows with ammunition and a set of clothing. These are dangerous times, not just since the king's death but since he fell ill a while back.
I'll have to look at materials and get back to you on that. Some of the materials are still going to have varying prices depending on whether I have to roll a dice to see if they are available, how much is available, and if it is hard to come by or not in that area.
As for your current equipment... If it is a new material, you have to have a new item made.
For example I'll use a longsword. If I have a standard longsword, it already has a hilt and blade, right? So I'd have to replace the blade if I want a new material, so I have to replace the longsword because typically hilts and blades are fastened with glues or something. At least, we'll assume as much for this. With a cold iron longsword, I'd buy the longsword base price and the material (cold iron) price.
Now if I want to add special properties (keen, frost, etc) then I need it to be a masterwork cold iron longsword first. And that is, again, a new sword made by a more skilled smith with more care. At least, that's the theory behind it with my thoughts and may not be the general idea of a masterwork sword, armor, etc.
So to get a masterwork cold iron longsword, I'd have to pay the masterwork cost, plus the material, plus the longsword base price. At this point, though, this sword is able to be upgraded without buying a new longsword. Now I can make it a +1, +2, keen, frost, whatever.
Let's say for example I want this to be a +1 frost cold iron longsword. In order to have a special ability like frost, it has to have the +1 enhancement, and then I have frost put on it for whatever the cost of frost is. My sword can have up to +5 enhancement bonuses and up to +10 in total (enhancement+special abilities). So if I choose to have a +7 equivalent in special abilities, my sword can only have a +3 enhancement bonus.
Towns have purchase limits, limiting how much they buy from you, and I am pretty sure there's a limit for how much they can sell too (ie, materials, base weapons, etc). My sheet for Neimod is upstairs and I'm about to leave, or I'd give you an example using this town for what the limits are and how they are used in the adventures.