Hi Sarah --
The home that recently sold below market value will hurt you, but how much depends upon how many others have sold recently in our neighborhood. If your neighbor's home was in foreclosure and was sold short, but there were several others that sold around the same time for a higher value (that were not in foreclosure), then it won't be as bad. Appraisers (and lenders) will allow for the fact that one of the comps is a foreclosure and not discount the value too much. If, on the other hand, there have been very few sales and the only things to sell are foreclosures, I think you'll probably have trouble when your buyer's mortgage company does an appraisal.
If your buyer is willing to pay the difference between the appraisal and the sales price, you can still sell it. Most buyers won't do this, though, and the seller either takes the home off the market or reduces the sales price to the appraisal. You can, of course, contest the appraisal but I rarely see this being successful unless the appraiser was comping in the totally wrong location and made egregious errors.
I have seen the appraisal come in less conservatively if the buyer is putting 30-40% down (and therefore isn't an insured loan) so my best advice would be to find someone who has more cash to put down.
One other thing: There's lots of talk about houses "selling way below market value". Market value is set by where houses are selling. If they continue to sell for lower and lower prices, THAT becomes the market value. We've been in a downward spiral and it has made for some very trying times for home sellers.
The best thing to do is not sell if you don't have to. If you can't bear the loss, consider staying put, or renting it if you have to move away, until the market improves. If you're moving up in home value (e.g., from a $200K house to a $500K house), the hit is a lot more palatable: housing currently is a down a percentage from where it was (say 20% for easy math). 20% of 200,000 equals $40,000 that you will "lose" on the sale of your home, however you'll be able to "gain" that same 20% ($100,000) on your purchase.
Get the advice and counsel of a good agent in your area. If you'd like me to send you the name of a great Coldwell Banker agent in Doral, just call me.
Best of luck!
Louise Warring, e-PRO, CSP, CNS
Certified Short Sale Professional
Coldwell Banker Residential Real Estate