John B. Connally is seeking a bankruptcy court judge's approval to sell his home for $700,000 to an unidentified buyer. Judge Larry Kelly is to rule Dec. 21 on the request by the former Texas governor, who filed for protection under bankruptcy laws July 31, seeking to reorganize his debts. Connally's original schedule of assets estimated the value of the house at $900,000. But according to court records, the decline in the Austin, Tex., real estate market has cut into its value. The house has a $500,000 lien against it from TransOhio Savings Bank. Connally, a former secretary of the Treasury, has moved out of the house and his Houston condominium and is living on his ranch in Floresville, Tex., said Mark Browning, one of his lawyers.