What is a short sale in real estate?

A short sale in real estate occurs when a property is sold for less than the amount owed on its mortgage. This scenario typically arises when a homeowner is facing financial difficulties and is unable to continue making mortgage payments, leading to a situation where the property's market value has declined below the mortgage balance.

In this arrangement, the lender must agree to accept the lower sale price as settlement of the mortgage debt, which is essential because they are often legally owed the full amount of the mortgage regardless of the property’s sale price. This process can help the homeowner avoid foreclosure and minimize damage to their credit rating.

The other options do not capture the essence of what a short sale entails. Selling a property above market value does not relate to the financial struggles that characterize a short sale, while a foreclosure involves legal proceedings to reclaim a property due to payment default. Lastly, the condition of the property is irrelevant in the context of a short sale; properties sold in this manner can vary widely in condition and do not necessarily need to be in excellent shape.