What is a short sale in real estate?

A short sale in real estate refers to the process where a homeowner sells their property for less than the amount owed on the mortgage, often as a way to avoid foreclosure. This situation typically arises when the homeowner is in financial distress and needs to sell quickly, but the market value of the property has declined to below the amount they still owe to their lender.

In a short sale, the lender must agree to accept a lower payoff amount, which requires negotiation and approval. This option can be beneficial for both the seller and the lender: the seller can avoid the negative impact of a foreclosure on their credit, and the lender can potentially recoup some of their losses instead of going through the lengthy and costly foreclosure process.

The other options do not accurately convey the essence of a short sale. While selling a property before it reaches foreclosure is related to the process, it does not specifically define a short sale’s financial implications. Selling for cash only does not consider the mortgage debt that defines a short sale. Selling at market value does not imply any relation to the mortgage amount, which is crucial in understanding what makes a sale “short.”