What is a "short sale" in real estate?

A "short sale" in real estate refers specifically to the scenario where a property is sold for less than the amount owed on the mortgage. This situation typically arises when a homeowner is facing financial difficulties and cannot keep up with mortgage payments, leading them to seek a sale that will satisfy the lender, despite the sale price being lower than the outstanding mortgage balance.

In a short sale, the lender must agree to accept the lower sale price as payment in full for the loan, which can help the homeowner avoid foreclosure. This process often requires thorough documentation and negotiation with the lender, making it quite distinct from other types of real estate transactions where the sale price aligns with the market value or the mortgage balance.

Understanding the implications of a short sale is crucial for both buyers and sellers. Buyers may see it as an opportunity to purchase properties at a lower price, while sellers must navigate a more complex process that involves lender approval. In contrast, other choices relate to different types of real estate transactions or conditions unrelated to the specific definition of a short sale.