But no one is going to spend $200k for a $300k mortgage if the house's value is significantly less than $500k. The price you would be willing to pay is basically the house's value minus the outstanding mortgage.
Well, it could decline in value after you buy it. The point is that having debt of $N doesn't always mean the value of the house is automatically adjusted by $N. Value is in the eye of beholder, or buyer in this case.