What characterizes a "short sale"?

A short sale is characterized by the sale of a property for less than the amount owed on its mortgage. This situation often arises when the homeowner is facing financial difficulties and cannot continue to make mortgage payments. For the sale to proceed, it is necessary to obtain the approval of the lender to accept the reduced sale price. This approval is critical because the lender has a secured interest in the property and needs to agree to the loss they will incur by allowing the sale to happen for less than the owed mortgage balance.

The other options do not accurately capture the essence of a short sale. While a quick sale at market value may occur in some transactions, it does not specify the critical aspect of the unpaid mortgage balance needing lender consent. An auction for distressed properties involves a different process that may not directly relate to the mechanics of a short sale. Lastly, a sale where the seller receives a pre-approved price from the bank suggests a different kind of transaction that doesn't center on selling the property for less than what is owed on the mortgage. Thus, the key element that defines a short sale is the necessity for lender approval in the context of selling the property for an amount less than the mortgage owed.