What is a "short sale" in real estate?

A "short sale" in real estate refers to a transaction in which a property is sold for less than the outstanding mortgage balance on it. This typically occurs when the homeowner is facing financial difficulties and is unable to continue making mortgage payments, prompting them to seek alternatives to foreclosure. In a short sale, the lender agrees to accept a reduced amount to satisfy the debt, which allows the homeowner to sell the property and mitigate their financial losses.

This process involves the lender approving the sale price and the transaction itself, which is a critical part of why this definition is correct. The homeowner works with the lender to facilitate this sale, again emphasizing the negotiation of a lower amount than what is owed. It operates on the premise that selling the property for less is preferable to allowing it to go through foreclosure, which can be a lengthy and costly process for lenders.

Other options do not accurately describe a short sale. For example, the notion of a sale where the lender pays the seller or a quick sale without lender consultation does not align with the structured negotiation that is essential in short sales. Similarly, auctioning the property indicates a different process altogether that may not involve the lender’s consent or the circumstances leading to a short sale.