No you're not crazy. But you are right to think through all the scenarios. I think your biggest issue may be selling your current house. The market is very strong in some areas, and not so strong in others. Check the time on the market for your area to get a good idea of how long you should expect for the sales cycle. Because if you're house hasn't sold by the time this one goes for bid, you will need to have the finances to cover both mortgage payments.
If you don't get this house, do you really want to leave your current one? Or is the plan you only want to move for this particular house? And have you checked out rental properties in your area? If I were you, I would sit down and make some different contingency plans to cover the different scenarios, and make sure both of you are in agreement with all of them so you can activate the plan when necessary and you won't find yourselves up at midnight arguing over what to do.
Sometimes the craziest decisions end up being the best ones...so good luck!!!