OP neglects to mention if there were any back taxes or water liens owed. Or if the house had been condemned. All I could find was one lot (not house) under 8K. http://www.zillow.com/homes/for_sale/Jamestown-NY/pmf,pf_pt/...
Sold on 8/16/11: $3,955
There are multiple houses that were sold below $4K there.
You probably forgot to turn on "recently sold" filter on Zillow.
http://www.zillow.com/homes/for_sale/Jamestown-NY/pmf,pf_pt/...