What is a short sale in real estate?

A short sale in real estate refers to the process of selling a property for less than the outstanding mortgage balance, with the approval of the lender. This situation typically arises when the homeowner is facing financial difficulties and cannot continue making mortgage payments. In a short sale, the lender agrees to accept a reduced amount as full satisfaction of the mortgage debt, which allows the seller to avoid foreclosure and potentially minimize damage to their credit score.

This option is correct because it accurately encapsulates the nature of a short sale, which requires both the homeowner and lender to agree on the sale terms. In contrast, other choices do not accurately reflect the definition of a short sale. Selling a property at market value does not involve any reduction in price related to debt; foreclosure refers to a lender taking possession of a property due to unpaid debts, and renting a property before buying it does not pertain to the financial arrangements typically involved in a short sale.