What is meant by a "short sale" in the context of real estate?

A "short sale" in real estate specifically refers to a transaction in which the proceeds from the sale of a property are less than the amount owed on the mortgage. This typically occurs when the homeowner is facing financial difficulties and is unable to keep up with mortgage payments, leading them to sell the property at a price that is below their outstanding loan balance.

The lender must agree to this type of sale, as they will be receiving less than the full amount owed on the loan. It's a way to avoid foreclosure and allows the homeowner to negotiate with the lender for a release from the mortgage obligation while selling the property. This concept is crucial because it reflects the overall condition of the real estate market and the financial circumstances surrounding the homeowner.

Understanding this term is vital for anyone involved in real estate transactions, as it affects the negotiations, pricing, and legal aspects of selling a property under financial strain.