What is a short sale in real estate?

In real estate, a short sale specifically refers to a transaction in which a property is sold for less than the outstanding mortgage balance, and this process requires the approval of the lender. This situation typically arises when a homeowner is facing financial hardship and cannot meet their mortgage obligations, thereby prompting them to seek a way to sell the property without a foreclosure.

The necessity for lender approval in a short sale is crucial; lenders must agree to accept less than what is owed on the mortgage because they are taking a loss. This distinction is important because it makes short sales a unique circumstance compared to other types of real estate transactions. The process also involves negotiations between the seller, potential buyers, and the lender, adding complexity to the transaction.

This definition highlights the core elements that define a short sale—specifically the financial conditions and the role played by the lender in the sale process, making it clear why this option is the correct answer.