Manny,

As the executor of the estate, speak with the attorney handling the estate to get their impression of the offer. I suspect they, or the courts, may order a new appraisal before making any determination.

The house next door is a only a guide as to value - it has not sold yet. Also take into account whether or not it has any updates.

Two of the comps at the time of the Feb. '09 appraisal were sold in Aug. '08, the 3rd sold in May '08 and as stated on the appraisal, "The quality of the sales data data is rated average due to limited similar comparables within the subject area...there was a 7.5 % decline in sales prices within 1 year for properties similar to subject. A-0.6% adjustment was made per month for the sale date of each comparable"

As far as competition, the house next door (similar but about 320 sq ft smaller with 1 less bedroom & .5 less bathrooms) is on the market for $339,900. It has no water damage (which I'm repairing in the house I'm selling) or signs of previous flooding in the basement but also needs updating.

Keith, I apologize if I was not clear. I am asking for opinions on this "after repair" offer based on the the prospective buyer's reasoning vs. the "before repair" appraisal.

As far as time on the market and offers received...It is not technically on the market yet. This an estate situation that I'm am the executor of and the perspective buyer is one of the heirs to the estate and the only one to make an offer.

Before going to the court and filing an application to sell it at this $335,000 offer, which the other heirs as well as the court can object to if they feel it's not fair market value, which is what I'm trying to avoid.

I am confused
What is your question?
In the last 12 months your average sale price per SF has dropped 20%.
Assuming a steady rate of decline, since February, that would be around 10%

The appraised value from February is not valid. It's a clue, but more important are the sold prices of homes like yours, in your area, that sold in the last month, or are pending right now.

If I were your Realtor, I'd look at:
How long your home has been on the market
Current comps, sold and pending

The single biggest factor is number of showings and offers, based on market time. If your property has been on the market a while (30+ days), and you have had no offers, then if this is the first offer, it would be my advice to figure out how to make it work.

Your next big problem is going to be the appraisal conducted by the buyer's lender. Since May first, when the appraisal process was changed, we've seen a big shift in the number of cancelled transactions due to low appraisals.

Good luck.

The February 2009 appraisal, unfortunately, has no bearing on today's values.
To obtain today's value, you have to look at what similar homes sold for in the very recent past, preferably within the past 60-90 days. Some of the comparable homes used in the February appraisal may very well have sold 3-6 months prior to that appraisal, so they will not be an indicator of today's values.
Also, take a look at what your competition is currently on the market for, and adjust those values down from the list price based on what the average purchase to list price ratio is in your neighborhood.
To be realistic, you have to try to utilize comparable homes that also have no interior updates. A huge preference would be given to comparable homes that also have water issues.

Water damage and a flooding basement will deter many buyers. Buyers will typically see these issues alone and drop the home's value, in their mind, by much more than the cost of the repairs.