Not sure if there is a settlement statement, or a legal agreement, or a tracking workpaper involved? These would provide supporting cost basis info for your workpapers and allow you to add certain closing costs for additional depreciation and possibly amortization, or cost expensing (title transfer, real estate tax allocation, etc.). If this is truly a sale, then cost basis would be the $187k as calculated plus any additions to cost basis from the settlement. If this is indeed an oral or handshake transaction (not a good idea imo) then the transaction becomes more basic of course (the flat $187k).

BobK raises a good point: is this a part-gift/part-sale transaction? Even so, when a transfer is a part-gift/part-sale transaction, the transferee's/donee’s basis is the greater of the amount paid for the property or the donor's basis at the time of the transfer, plus any federal gift taxes paid. Seems like the $187k would again prevail. Also, I would think the daughter is benefiting in other ways from financial/grandkids support, loan repayment to parents, etc. and thus not a part-gift in any case?

Then of course there is the future inheritance and step-up in basis to consider. Since there would then be no recapture, the parents should certainly maximize the depreciable cost basis. 

Never a dull moment. (and yes, I have grown kids and also a client in a similar situation, which drew me to this thread) : )