What is a “short sale” in real estate?

A "short sale" in real estate refers specifically to a situation where a property is sold for less than the amount owed on the mortgage. This scenario typically arises when a homeowner is facing financial difficulties and is unable to continue making mortgage payments, which could lead to foreclosure. By opting for a short sale, the seller seeks to negotiate with the lender to allow the property to be sold at a reduced price. The lender often agrees to accept the lower amount, as it can be more beneficial for them than going through the lengthy and costly foreclosure process.

The key aspect of a short sale is that it requires the lender's approval since they are taking a loss on the mortgage amount. This process allows the seller to alleviate their financial burden while providing buyers the chance to purchase properties at below-market prices. It's important to understand that a short sale is different from other types of sales, as it involves financial distress and negotiation with the lender.