What describes a short sale in real estate?

A short sale in real estate is best described as a sale for less than the mortgage owed. This situation typically arises when a homeowner is unable to make their mortgage payments and seeks to sell the property for less than the outstanding mortgage balance. In these cases, the lender must agree to accept a lower amount than what is owed on the mortgage, allowing the homeowner to avoid foreclosure.

In a short sale, the seller negotiates with the lender, demonstrating that selling the property at a loss is more beneficial than proceeding with a foreclosure, which can be a lengthy and costly process for the lender. The transaction usually involves some level of financial hardship on the part of the seller, making it imperative for the lender to participate actively in the process.

Understanding this concept is pivotal for real estate professionals, as it affects how properties are marketed, the negotiation process, and the potential impact on a seller’s credit score compared to foreclosure.