There are two buyers running up prices in this market: the couple buying your house, and their mortgage company. Before approving the mortgage, the lender will appraise the property and determine whether it is properly priced. You can buy whatever you want with cash, but lenders tend, or used to tend, to be more conservative in their valuations. The appraisal determines whether or not this property is good collateral for the size of the loan: will the bank be able to recoup their losses by selling the property?
Both are interested in one thing: affordable payments. The mortage company wants you to be able to afford your payments so that you do not default on the loan. You want to afford your payments so that you do not lose your house. The mortgage company is also making a profit. If they can make a quick profit, then it doesn’t matter to them that you can’t afford your payments, or that they purchased an over-valued house.
It will matter to the secondary mortage market if you default and the bank takes a loss.