What is a "short sale" in real estate?

A "short sale" in real estate specifically refers to a transaction in which a property is sold for less than the outstanding balance owed on the mortgage. In such scenarios, the seller seeks approval from the lender to allow the sale despite the fact that the proceeds will not cover the full mortgage amount. This typically occurs when the homeowner is in financial distress and unable to keep up with mortgage payments, thus presenting a less costly solution for both the lender and the borrower compared to a foreclosure.

Short sales can benefit the lender as they often incur fewer losses compared to foreclosures, and they allow the seller to avoid having a foreclosure on their credit record, which can have long-lasting negative effects. This understanding of short sales underscores their significance in the real estate market, especially in situations of economic hardship.

Other choices do not align with this definition. Selling a property at market value doesn’t capture the essence of a short sale, since a short sale specifically involves selling below what is owed. A sale after foreclosure is distinct from a short sale, which occurs before foreclosure proceedings. Lastly, a lease agreement is unrelated to the concept of a short sale, which exclusively deals with property sale transactions.