What is a short sale in real estate?

A short sale in real estate occurs when a property is sold for less than the amount owed on the mortgage. This situation typically arises when the homeowner is facing financial difficulties and cannot keep up with mortgage payments, leading to a scenario where selling the home at its current market value will not cover the remaining mortgage debt.

In this context, the lender must agree to accept the reduced proceeds as settlement for the loan, and this can often be a lengthy process as it involves negotiations. The primary goal of a short sale is to help the homeowner avoid foreclosure while enabling the lender to recover some of the outstanding balance instead of incurring the costs and complications associated with a foreclosure process.

This definition is crucial in understanding real estate transactions where financial distress is a factor, as it affects the way property is valued and sold, and the options available to homeowners under financial strain.