What is a "short sale" in real estate?

A "short sale" in real estate refers specifically to the 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 is unable to continue making mortgage payments, leading them to sell the property at a price that is insufficient to cover the existing mortgage balance. In this case, the lender must approve the sale because they will receive less than the full amount owed on the mortgage; consequently, it is seen as an alternative to foreclosure.

The concept of a short sale is significant because it allows homeowners to relieve themselves of debt and enables lenders to avoid the more costly and lengthy foreclosure process. The transaction requires careful negotiation and documentation since it involves coordinating the interests of the seller, buyer, and lender.

In contrast, the other options do not accurately reflect the definition of a short sale. A time constraint for closing a sale, as suggested in the first option, does not specifically define a short sale; rather, it relates to the timeline for any real estate transaction. The notion of a quick sale without inspections is misleading, as inspections can still occur depending on the circumstances, independent of the sale being classified as a short sale. Lastly, auction events refer to a different method of selling property and