what are our options in selling our house?

we bought a house for $60k. we did some work on it and when we refinanced it was appraised at $72k but we only refinanced for $65k. we're looking to sell the house and move within the next year and still have a little bit of work to do but we've already put a lot in.

now our neighbors have decided to sell their house, and it's a little nicer than ours. the problem is they're selling it for $62k. they're an elderly couple who have been there for a long time and i have a feeling they're selling it for way below market value just to sell it. doesn't that drop the value of every house in the neighborhood? and what do we do now that a nicer house is on the market for less than our current mortgage?

there's no way we can put the money in to make our house nicer, we just can't afford it and we really don't want to be forced to stay here for 5 or 10 more years just to pay it down to be able to sell it for what we need to pay off the mortgage. they are listing it through a realty. i'm really very upset over this as we had plans to start listing the house in the fall so we can move to NC where my husband can get a way better job. there's absolutely no way we can afford both house payments, so moving and buying a house or renting while selling this one is not an option.