I'm going to look at a 960 today that has low compression on #5. I will try to purchase the car if it's a bad head gasket but I likely can not afford to fix it if the motor is bad.

How can I tell the difference? The guy said that all cylinders have 210 except #5 which has something like 40. I think the 3 reasons for bad compression are:
1. Piston wear or piston sleeve slippage.
2. Head gasket breach.
3. Burnt/cracked valve.
4. Cracked/damaged block.

I know that's 4. The car has 61,000 miles on it. That's nuts that the motor is damaged. So, to test the cylinder, I pour some oil down the spark plug hole and see if the # raises a lot, it's something with the piston correct?

My guess is that it either sat to long and a sleeve stuck to a cylinder wall but the likely thing is that someone was playing coolant roulette and over heated the motor and cracked the block or warped the head.

 

Your best bet is a leak down to test.
Just did mine last night after a compression test showed 90lb in #4. The test ended up pressurizing the oil in my crankcase and oil blew out of the dipstick, meaning that I had bad rings. Pulled the piston out to find that the 3rd land between the piston rings was cracked. Time for a new piston.