A certified appraisal is best.
There is an argument (mentioned by the others) that the selling price is proof of fair market value. Selling price of an asset is the definition of FMV at the time of the sale, of course, provided the sale is an arms-length transaction to an unrelated party. The argument then is that, if the home is sold relatively close in time to the death of the previous owner, and there are no major ups or downs in your local real estate market, then the selling price can also stand in for the FMV on the date of death. Also as mentioned, this is not actually part of the tax code or regulations. It's a general rule of thumb.
Most taxpayers are never audited, but if you are audited, the IRS does not have to credit you with any FMV that you can't adequately prove. I have not read any Tax Court cases or the audit manual to see what the IRS or the courts consider to be adequate proof. A qualified appraisal is not very expensive, considering the consequences. An appraiser can give you a retroactive appraisal based on historical trends.
