What defines a "short sale" in real estate?

A "short sale" in real estate refers to a situation where the homeowner sells the property for less than the outstanding balance on their mortgage. This typically occurs when the homeowner is unable to meet their mortgage obligations due to financial difficulties and seeks to avoid foreclosure. In a short sale, the lender must agree to accept a reduced amount as full satisfaction of the loan, which is often in the lender's best interest because it allows them to recoup some of their losses while avoiding the lengthy and costly process of foreclosure.

This understanding emphasizes the financial aspect of a short sale, highlighting that it is fundamentally about negotiating with the lender to accept a lower payoff on the mortgage rather than simply being a quick transaction or a profitable endeavor for the seller. The motives for a short sale are often driven by the seller's circumstances, rather than the prospect of significant financial gain.