What is a "short sale" in real estate?

A "short sale" in real estate refers specifically to a sale where the property is sold for less than the amount owed on the mortgage, and it requires the lender's approval. In this scenario, the lender agrees to accept a reduced payoff to allow the homeowner to sell the property, often as a means to prevent foreclosure. This arrangement can benefit both parties, as the seller avoids the lengthy and damaging process of foreclosure, while the lender can recover some of the funds owed rather than facing a total loss.

This definition confirms that the correct answer highlights the necessity of lender involvement when the sale price is below the outstanding mortgage balance. Such transactions are not simply about lower market prices or expedited sales, but rather about negotiating a resolution that recognizes the financial difficulties faced by the seller and the lender's interest in mitigating their losses.