No, the cost basis is not the fair market value (FMV) because your mother is still alive. This is actually a gift to you and your sister. The cost of the property is the actual money your mother paid for the property including capital improvements over the years. The cost basis for both sisters is the same as your mother's cost basis.
Yes, you will divide this cost basis by 3 and then use that to reduce the gain on the property. For you and your sister it would be an investment property sale and for your mother it would be a sale of her home. It's possible based on your questions that the house was sold and then part of the proceeds were given to each daughter. If so, your mother would report the home sale and gift tax may come into play. This is beyond the scope of this forum.
Depending on what was actually in writing or agreed upon by your mother and the daughters I advise seeking the advice of legal counsel specializing in gift tax law.
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