If you are talking about the property I'm thinking about, then $260,000 is overpriced. You are correct that they purcased it for $155,000 in 2001, and they got a VA loan. After researching it further, I also found out that the past owners started their listing price at $169,900 and obviously let it go for $155,000--BUT, it stayed on the market a total of 237 days--virtually 8 months.
It looks like a great location to be in, close to West Knox, Downtown, and virtually anywhere. Also, I see that it has almost an acre and has a cool contemporary design. However, based on my research, I'm also noticing a house very similar to it with similar acreage in the cul-de-sac close by the house you're talking about. It sold in August for $180,000. Granted, contemporary design houses usually sell for more in this market--however, I just don't see $80,000, ya know?
However, further researching the area, I also found a pretty similar home that sold for $275,000 in January 2007. It was a 2,470 SF home with .75 acres completely restored and upgraded. So, that tells me that in the immediate area, prices have appreciated quite a bit. Now, it totally depends on the condition, floor plan, privacy, etc. of the house you're looking at to see what it's really worth.
Find out what upgrades they have, what systems have been replaced, how old the is the roof, exterior material, etc. Also, think about the floorplan: does it have 3 bedrooms or 3 bedrooms plus a room designated for office space/study...3 bedroom homes in this price are a nightmare to resale. Everyone wants an extra room for office space, guest bedroom, playroom, etcccc. Also, how is this house positioned? Do you have any highway noise, other neighborhood nusances? Is the property sitting close to the road, or does it have a private front yard? All of these items affect the value of a home. Once I know, or you know, the answer to these questions, then you know whether that property's value is closer to the $180K range or closer to the $275K.
When a house is in a cookie-cutter n'hood, prices are generally the same within the same floor plans. Now when you are dealing with custom built homes, especially with acreage, it's more difficult to establish a market value without seeing the property. I'm not sure I would personally pay $260,000--but then again, I'm the type of girl that always likes to get something off the price :)