A “short sale” in real estate is the sale of property when it is sold for a value less than what is owed on the property.  

The lender will have to approve this kind of sale. 

A short sale is preferred by sellers because it will not be as damaging to their credit history as a foreclosure. The sellers have to write a hardship letter and provide their lender with bank statements, their current debts and income to show that they are indeed in a hardship situation. Once the sellers’ paperwork is submitted they are assigned an advisor. If the lender is receptive to doing a short sale, the seller is advised to hire a Realtor who will price the house aggressively in the hope of getting a prospective buyer quickly.

A lot of sellers in today's market are 'upside-down', meaning they owe more on their home than the home is worth. Many homeowner's are simply 'hanging-on' hoping that prices will recover.

In many situations, divorce, job loss, job move, and financial hardship, makes it necessary for the seller to pursue a short sale.
The lender may decide not to allow the short sale. They may be better off taking the insurance they have on the loan. Sometimes, there are two lenders involved and essentially the second mortgage holder looses out unless they are willing to take over the first mortgage. Or, they negotiate with the first mortgage holder the loss that they are indeed willing to take.
Most lenders will wait until they receive an offer before doing a BPO (Broker's Price Opinion) to see if the offer is worthy of acceptance. The lender assigns a negotiator who will try to get a higher price.
Many banks are not equipped to handle the volume of short sale requests and thus many potential buyers get disgusted with the wait and terminate their offer.