Colorado Sales License Practice Test

A "short sale" in real estate refers to a transaction where the property is sold for an amount that is less than the outstanding balance on the mortgage. This usually happens when the homeowner is facing financial difficulties and cannot continue making mortgage payments, leading them to seek a way to avoid foreclosure. In a short sale, the lender must agree to accept the reduced payment, as they will typically incur a loss from the sale.

This process can be beneficial for both the seller and the lender. The seller can avoid the damaging effects of foreclosure on their credit report, and the lender may recover a portion of the unpaid loan rather than going through the lengthy and costly foreclosure process.

The other options do not accurately define a short sale. A sale for cash only does not necessarily involve the financial distress that characterizes a short sale. Similarly, the duration of the sale does not impact its classification as a short sale; it can take longer than 30 days depending on various factors. Finally, while sellers may not receive proceeds from a short sale, this is not a defining characteristic of the term. The critical component of a short sale is that the sale proceeds are insufficient to cover the debt owed on the property.