What does a short sale in real estate refer to?

A short sale in real estate refers to a sale of a property for less than the amount owed on the mortgage. This situation typically arises when a homeowner is facing financial difficulties and cannot maintain their mortgage payments, leading them to seek a way to sell the property while avoiding foreclosure.

In a short sale, the lender agrees to allow the property to be sold for a lower price, accepting the proceeds as full satisfaction of the debt, even though the sale price does not cover the total amount owed on the mortgage. This process requires the lender's approval because they incur a loss on the sale.

Understanding the concept of a short sale is crucial for those in real estate, as it can provide an avenue for distressed homeowners to relieve debt while potentially offering buyers an opportunity to purchase property below market value.