What is a "short sale" in real estate?

A "short sale" in real estate refers to a sale where the property is sold for less than the amount owed on the mortgage. This situation typically arises when a homeowner is unable to keep up with mortgage payments and wishes to avoid foreclosure. In a short sale, the lender agrees to accept less than the total owed on the mortgage as a way to facilitate the sale of the property. This can help both the homeowner and the lender mitigate potential losses; the homeowner can sell the property and move on, while the lender may minimize their losses compared to the lengthy and costly foreclosure process.

The other options do not accurately define a short sale. Selling above market value, selling for exactly what is owed, or conducting a sale through an auction process does not encompass the unique circumstances associated with a short sale. In particular, the essence of a short sale is the financial distress that leads to a selling price lower than the outstanding mortgage balance, which is clearly captured in the correct answer.