What characterizes a short sale in real estate?

A short sale in real estate is characterized by the situation where the sale proceeds do not cover the mortgage balance owed on the property. This typically occurs when a homeowner is in a financial situation where they cannot afford to maintain their mortgage payments, and the value of the property has declined. Consequently, the lender agrees to accept less than the total amount owed on the mortgage to facilitate the sale, allowing the homeowner to avoid foreclosure.

In this scenario, the focus is on the negotiation between the seller and the lender, where the lender must approve the short sale, acknowledging that the sale price will not cover the outstanding mortgage balance. This characteristic sets the basis for what distinguishes short sales from traditional real estate sales, where properties are usually sold for their market value and the mortgage balance is satisfied in full.