What is a "short sale" in real estate?

A short sale in real estate refers to the situation where a property is sold for less than the outstanding balance on the mortgage. This typically occurs when a homeowner is facing financial difficulties and cannot keep up with mortgage payments, leading them to negotiate a sale price with the lender that is lower than what they owe. The lender must approve this sale since they are accepting a loss on the mortgage amount. This process can often be a more favorable alternative to foreclosure for both the homeowner and the lender, as it can help the seller avoid the negative impacts of a foreclosure process and allows the lender to recover some funds more quickly than they might through foreclosure.

The other responses refer to different scenarios in real estate. A sale at the market value, for example, does not involve the financial distress typically associated with a short sale. Foreclosures involve the lender taking ownership of the property after the homeowner fails to maintain payments, differing fundamentally from the short sale process where the homeowner is still involved in the sale. A sale at auction also represents a different context, usually associated with distressed properties that have not been successfully sold in the traditional manner.