What characterizes a "short sale"?

A short sale is characterized as a sale of property for less than the mortgage amount, which necessitates the approval of the lender. This situation typically arises when the homeowner is unable to continue making mortgage payments and is seeking to avoid foreclosure. In a short sale, the lender agrees to accept a lower amount than what is owed on the mortgage because it is often a better financial outcome for both the lender and borrower than going through a foreclosure process. The lender must evaluate the circumstances and approve the sale since they would be accepting a loss on the loan.

The other options outline scenarios that do not accurately define a short sale. While a quick sale of property at market value might occur in various circumstances, it does not align with the key aspect of selling for less than the mortgage amount. An auction for distressed properties represents a different sales method, often involving competitive bidding, rather than the negotiated process typical of a short sale. Similarly, a scenario where the seller receives a pre-approved price from the bank does not encapsulate the necessity of a lender's approval for a sale that is less than what is owed on the mortgage.