What is a "short sale" in real estate?

A "short sale" in real estate refers specifically to the process where a property is sold for less than the amount still owed on the mortgage. This typically occurs when the homeowner is under financial distress and cannot maintain their mortgage payments. The lender agrees to accept a lower payoff than the total amount borrowed, allowing the property to sell for less than the outstanding mortgage balance.

This arrangement is often initiated by the homeowner who, facing potential foreclosure, seeks to sell the property quickly to mitigate their losses. The transaction requires the approval of the lender, as they are not only agreeing to a reduced payout but also allowing the sale to take place at a lower price than what is owed.

Understanding this concept is crucial for real estate practitioners since it involves navigating negotiations between the seller, potential buyers, and financial institutions, and affects how properties are valued and sold in distressed situations.