What exactly is a short sale in real estate?
A short sale occurs when the seller owes more on the property than it is worth, does not have the means to pay the difference, and the bank agrees to accept LESS than a full payoff for the amount owed.  In such cases, the seller must demonstrate a genuine financial hardship. 

Banks lose LESS money on short sales than they lose on foreclosures. Therefore, they have a logical reason to accept a short sale, especially if the sale price is close to the current market value of the property, and it appears that a foreclosure may be likely.  The amount owed is not the determining factor.  What is important? The fact that the property is worth less than what is owed, and that the seller has a GENUINE FINANCIAL HARDSHIP. These are the two qualifications that are necessary.  The fact that the property is worth less than what is owed does not automatically qualify the owner for a short sale by itself.

DO YOU QUALIFY?
Some financial hardship examples include: loss of job, business failure, damage to the property, death of a spouse, death of family members, severe illness, inheritance (when the property is inherited with a mortgage the heirs cannot pay), divorce, mandatory job relocation, medical bills, military service, payment increase, insurance or tax increase, reduced income, separation, too much debt, or incarceration. 

Sellers do not have to pay the Realtor's commission or closing costs in a short sale. These funds come from the sale of the property, and this is made possible by the fact that the lender is taking less than what is owed.

Sellers are NOT ALLOWED to receive any funds from the sale of the property. After all, the lender is agreeing to take less than what is owed by the borrower.  Weigh the cost of renting a moving truck against the repayment of the mortgage balance (often 100's of thousands of dollars) and it is easy to see why many sellers have chosen to pursue bank-approved short sales.

Sellers benefit from a short sale by reducing the hit on their credit, avoiding foreclosure, and avoiding the severe consequences of a foreclosure.  Thinking about just walking away from your property?  Foreclosure consequences that could be avoided or greatly reduced by a short sale include:

• the loss of security clearance
• having "foreclosure" stamped on your credit report for 10 years
• an average loss of 300 points on credit scores
• higher interest rates on future purchases
• HIGHEST POSSIBLE AMOUNT on DEFICIENCY JUDGMENTS from foreclosures -The lender's recourse doesn't end with the foreclosure sale on the court house steps, and the transfer of property ownership to the lender. The lender will eventually file a deficiency judgment against the borrower equal to ALL of the funds it lost as a result of the foreclosure. i.e. attorneys fees, property taxes, maintenance, insurance, resale expenses, commissions, etc. PLUS the amount of the mortgage that was not paid back from the sale of the property.   
• no approval on Fannie Mae-backed mortgages for five years
• challenge to current and future employment for sensitive positions

Each of the above items could be substantially reduced or possibly avoided altogether through a lender-approved short sale.