What is a "short sale" in real estate?

A "short sale" occurs when a property is sold for less than the amount owed on the mortgage. In this situation, the seller is typically facing financial hardship and cannot keep up with their mortgage payments. By opting for a short sale, they negotiate with the lender to accept a lower price for the property than the outstanding balance on the mortgage.

This arrangement allows the seller to avoid foreclosure, which can have severe long-term financial and credit implications. The lender often agrees to a short sale because it can be a less costly and quicker resolution compared to the foreclosure process. In a short sale, the lender has to approve the sale terms, including the price, ensuring they are willing to accept the reduced amount. This is a common strategy in real estate when homeowners are in a distressed financial situation but still want to mitigate losses and exit the property without going through foreclosure.

The other options refer to different situations in real estate. Selling for more than the mortgage amount refers to a profitable sale, market value implies a sale at fair market price, and foreclosure involves the lender taking possession of the property due to non-payment, which is a more drastic measure than a short sale.