Real Estate Live

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Maryann Haggerty
Washington Post Real Estate Editor
Friday, September 2, 2005; 1:00 PM

Welcome to Real Estate Live, an online discussion of the Washington area housing market, featuring Post Real Estate editor Maryann Haggerty .

Maryann's been with The Post for 18 years and has served as real estate editor for the last five years. She's been a business and real estate editor and reporter for about 25 years. In all that time, she still hasn't figured out where you can find a lovely but inexpensive house in a charming neighborhood.

Today, we discussed the specifics of the market, from condos and investment properties to contracts and mortgages.

The transcript follows.

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Maryann Haggerty: Welcome to our regularly scheduled journey into the unknown, when we try together to figure out the local real estate market.

One reader recently asked me some questions about what exactly he should look for in a starter home. What compromises should he be prepared to make? How long should he be prepared to live there? I'm interested in your thoughts about the role of the starter home--exactly what is it these days? What advice can you give? The most interesting or most helpful thought gets a book from my seemingly bottomless stash of real estate investing tomes.

So weigh in with your thoughts, questions, etc!

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Washington, D.C.: Here's a question you've never gotten before ... when will the housing bubble burst? Ha. Just kidding. Real question: What neighborhoods in D.C. do you see as the "hottest" in terms of values right now? Thanks!

Maryann Haggerty: Well, I might as well start with this one, and say one more time: I don't know if it's a bubble. I don't know what the future holds. No one does. And to complicate things further: Especially, right now, today, no one knows. No one knows what $3-plus gas, and the largest domestic natural disaster ever, mean for the economy or for interest rates.

As far as your real question: The District, including neighborhoods that just a few years ago were being written off as unrescuable, has been the focus of speculative fever. If you want the next hot neighborhood--i.e., the next place where prices will soar--then you need to look for places where others haven't already inflated the prices. And at this point, that pretty much leaves east-of-the-river.

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No Name, Florida: Maryann -- Do you know any LEGAL ways to beat the Capital Gains tax when selling an investment property? I've got a brand new home that has built up quit a bit of equity, and I'd rather not fork over 30% to the IRS. Short of moving into the house and making it your primary residence, can you think of any ways to beat the system? I know, I know ... if it were that simple, everyone would be doing it. Still, there's gotta be something ... right?

Maryann Haggerty: You can can use a Starker exchange to acquire another investment property. You can move into the house and live there for 2 years and take advantage of the principal-residence tax break. OR: You can pay the tax! And guess what? You should have factored that into your investment calculations.If you can't make a profit after paying the lawful tax, then you haven't made a profit. Sorry, but I think it's a good thing that the tax code does not reward speculative property flippers.

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Alexandria, Va.: What do you think about buying a condo in the Columbia Pike area? There seems to be big plans for the area.

Maryann Haggerty: I like that neighborhood. In comparison with other close-in places, prices are almost reasonable. And the county has big plans for upgrades. I used the Columbia Pike bus routes to get out and back a couple weeks ago, and was impressed with the upgraded service--the buses run very frequently.

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Alexandria, Va.: Hi Maryann! I've been reading that real estate prices are up 13% year-over-year for the past several months. But I've also read that real estate prices are DROPPING month-to-month for the past several months. How can this happen? Which one is right?

Maryann Haggerty: Your 13% number comes from the OFHEO study released yesterday. (For details, see www.ofheo.gov) It said that, nationally, prices rose a very steep 13% between the second quarter of 2004 and the second quarter of 2005. Now, the second quarter ended June 30. Those numbers don't take into account anything that happened in July and August.

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Falls Church, Va.: Hi Maryann, Last two months, I have been looking for a new house in Falls Church Virginia area. Real estate seems to be slowing down. When would it be a right time to buy?

Joe Tran

Maryann Haggerty: The right time to buy is when you find a house you like in a neighborhood you like at a price you can afford. If prices slow or drop, it's likely to be because interest rates are going up. That will affect your monthly payments.

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Burke, Va.: Hi Maryann,

I'm going to be a first-time home buyer within the next few months but am worried that if I do decide to purchase a home/townhome in the next few months the bubble will burst and I will take a large hit on property value. I can wait -- at the latest -- until April of next year. When do you think is the best time to purchase?

Maryann Haggerty: Same question, but let me try a slightly different answer: If prices DO collapse, you will really only be affected if you have to sell your house. If you stay in the house, short-term fluctuations in value won't hurt you. Heck, they can even mean lower property taxes! (Hey, stop laughing...)

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Woodbridge, Va.: I would like to rent my place in Woodbridge, Va. next summer (Aug./Sep. '06) for two or three years while I go back overseas. I would like to have a family or member of the military renting the house. We have great bus service from a commuter lot 1/4 of a mile from the house. The bus service goes to the pentagon. The house has a new roof, siding and windows. House has four bedrooms, three and a half baths, large deck and finished basement. Does anyone know how to advertise at the Pentagon and other military installations? We are also 20 minutes from Quantico and five minutes from Potomac Mills Mall.

Maryann Haggerty: Others may have better ideas--like, I bet there's a publication that circulates solely at the Pentagon--but I would start with ads in The Washington Post (very widely read, thank you!)and also Stars and Stripes, the daily newspaper for the U.S. military here and abroad.

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Centreville, Va.: I am very concerned about living in the Northern Virginia/D.C. metro area with the increasing daily expenses. At the moment I am renting and hope to buy a single family home one day but my entire family income is under 100k. For example, one of the newer housing developments close to me put up a sign that said, "Homes now starting in the low 700s" but what is low about that?!?! Do you have any suggestions for how a couple with two kids with our income can escape the apartment life and not have to move to the mountains or 50 miles away from D.C. to buy a house in this area? I really don't see how people continue to afford to buy these very expensive homes and live in this area.

Maryann Haggerty: Yes, it's very expensive to live here, but "low $700s" is not the bottom of the market. You need to shop around, if you truly are interested. You may need to make some compromises. Yes, many people are moving further out--that's the compromise they have made. Others are buying smaller places, or places in school districts they may not have thought they would consider. Still others are buying with loans that some would consider risky, such as interest-only ARMs. The simple, inescapable fact is that this is a very wealthy area, and many people can afford to those prices. Those who can't are getting closed out. At least the situation isn't as difficult as in California, I keep telling myself.

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Arlington, Va.: 1021 Clarendon is a new condo building ... there are a lot of units on the market, but very few were sold. Do you think it is because of the season or because it's too expensive (480k for one bedroom)?

Maryann Haggerty: I don't know what the details are on any specific condo building, but let's think back six months or so. When hundreds of people were lining up to put deposits on new condos, who were those people? It turns out that many were investors, interested more in making a quick buck by flipping the property. With prices as high as they are, and the market as uncertain as it is, those people may not see the prospect of unlimited riches anymore.

Or maybe it's just that it's still summer.

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Rockville, Md.: Are 40 year mortgages out there or are they something you have to qualify through via Fannie Mae or Freddie Mac?

Maryann Haggerty: Yes, there are 40-year mortgages. They are expected to become more common, now that Fannie Mae has told lenders it will buy them. (Fannie/Freddie don't lend directly. They buy mortgages originated by others.) The best place to look, however, is your credit union. Credit unions got a head start on this because of a pilot program started a year or so ago. Also, the state housing authorities in both Virginia and Maryland have programs that make these loans, with income limitations. Maryland residents can check www.morehome4less.com for information; Virginians see www.vhda.com. As far as I know, the District doesn't have such a loan program.

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Riverdale, Maryland: Look at areas such as Charles County, Accokeek, Ft. Washington and University Park, Laurel, Bowie, Greenbelt, Adelphi, near the University of Maryland. You may still be able to find a great deal at 450k-550k and some of these areas are Metro accessible.

Maryann Haggerty: A very good general tip for those searching for affordable neighborhoods.

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Syracuse, Ind.: If you reside in your home for 2 years straight are you exempt from paying capital gains tax?

Maryann Haggerty: If you own and live in your principal residence for two out of the five years preceding a sale, you are free of capital gains tax on the first $250,000 of profit ($500,000 for married couples filing jointly). It is a spectacularly good tax break.

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Lost in Fairfax: I put my house for sale at the end of July and still out there is price according to the area and every real estate agent I talk to the say the house is in good condition and maintained very well but I still can't get an offer. Any idea what I should do?

Maryann Haggerty: It may be a tired listing by now. Consult with your real estate agent. Maybe you need to take it off the market a little while--or maybe you need to step up marketing. (And if you don't have a real estate agent? At least consider using one. Maybe selling a house isn't as easy as you thought.)

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Arlington, Va.: My husband and I want to buy a house in North Arlington in the next couple of months. We are worried, however, that moving the defense jobs into the outer regions of Virginia and Maryland will hurt the values of residential real estate in the area. This is aside from any fall-out of a "bursting bubble." Should we even be worried about this?

Maryann Haggerty: I think the reality is that people have already been pushing outside the Beltway by prices. I think you would have to move a lot more jobs to put a dent in the demand here.

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Upper Marlboro, Md.: Is it legal or lawful for builders to bar investors from buying properties. And can you be forced to hold on to a property by your builder if you do decide to sell?

Maryann Haggerty: Those investor bans have not yet been tested in court, as far as I have read. If you sign a contract that says you won't sell, then you would seemingly be barred from selling--that's what you agreed to, after all. But if you wanted to be the test case, you could always go to court. Then we'll know whether these contracts hold up.

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First time home buying advice: As a single woman with not a high paying job (in the nonprofit sector), I bought my first home in 1998 in Takoma Park. I must say that the price was right (under $100,000), but the 1930 bungalow is small, 900 sq. feet, it was smelly and hadn't been kept up at all. Seven years later it is still small (although I added on a 3 season porch in the back) and obviously cleaned and painted it up, but I absolutely love it. Why? the neighborhood! I can't think of any other place I would rather live. I know not just my neighbors on either side of me, but up and down the block and also neighbors surrounding my block. We have a street listserv where you can ask for help or to borrow a tool, or even to get the neighborhood to go in on a expensive item like a powerwasher for us all to share. As a single woman, I feel so safe and dare I say "watched over" by my neighbors. So I guess this is just a long way of saying, DON'T COMPROMISE ON LOCATION!

Maryann Haggerty: Some starter-home advice. And I'll chime in on this one, because my personal situation is similar: My house is small, and I thought it would be a starter, too. But 12 years later, I'm still there, and that's because I love the neighborhood.

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Arlington, Va.: Hi Maryann, In response to your question about what is most important for first-time homebuyers, one of the biggest things that I considered was how much maintenance work I thought would go into it. We're inexperienced homeowners, and after years of being able to just call the landlord when something needs to be fixed, I wanted to know the the house was in decent condition and wouldn't require anything major in the next couple of years (even finding just a handyman to do small things can be quite a task). Also, we considered that this area is hard to trade up in given the rising prices, and so we wanted to find a place that we would be happy in for five years. We sacrificed on convenience (I now bus rather than metro to work), but for that trade, we were able to keep proximity to D.C. (used to live in Clarendon, and moved just two miles south to Columbia Pike). My two cents.

Maryann Haggerty: Your two cents accepted.

It's amazing how much work you need to do to a house, any house, when you move in, isn't it?

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Indiana: Regarding a starter home: (from the perspective of one who is still living in hers lo! these many years later) 1. A starter home should be as much house as you can (comfortably) afford. 2. Never buy anything you don't like just to get into a market. You never know how long circumstances will keep you there, and rent is cheaper than therapy in the long run. 3. Don't buy anything that requires major changes if you are maxing out your finances to purchase. Figure in the cost of what you need to do when figuring out 1 and 2.

Maryann Haggerty: More good advice.

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Rockville, Md.: Hello. I wonder if you can briefly cover the pros and cons of refinancing vs. home equity loans.

My husband and I own a home that has appreciated $100,000 since we purchase it one year ago. We have a 30-year 80% mortgage currently at 6.25% and are wondering if it's wise to refinance or take out a home equity loan in order to repair our driveway, shed and crumbling back porch and also pay off about 5K in credit card debt. Both of our parents always told us not to borrow against our house, ever, but neither lived in this market or really explained why.

Thanks for any help you can provide!

Maryann Haggerty: Price it out. Compare the monthly and upfront costs of the two types of loans. You may not be able to bring down the rate on your main loan much at this point, so that might make a smaller home equity loan a bit more attractive. Get quotes from your current lender on both, and shop around. If you decide to use a home equity line of credit rather than a straight-out home equity loan, be aware that the interest rate may fluctuate.

And your parents told you never to borrow against your home because that was the accepted wisdom, especially for a generation that had memories of the Depression. These days, even conservative advisers say it's OK to borrow, IF IF IF you use the money wisely, & can afford the payments. Fixing your crumbling back porch is a good thing. Spending the money for a big-screen TV or the like is foolish.

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Montpelier, Maryland: Everyone keeps talking about a bubble. However, prices are still going up and those who do not have a home are paying more each month or year they wait. If there is a slow-down, the D.C. area will only be lightly affected because of the jobs that are generated in this region. As Maryann Haggerty stated, If you find a home you like buy it. Don't worry about things you cannot control.

Maryann Haggerty: Hey, I didn't write this one myself!

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Silver Spring, Md.: To Centreville, Va., brand new home prices are crazy, yes. But, you can actually buy a nice, renovated SFH in Montgomery County for between $400k-450k with a good school district and a real yard! I believe there might be some older neighborhoods in NoVA where you can find an up kept, older SFH just a bit more.

We just bought a 3-year old TH in Silver Spring for under $450k. Twinbrook, Aspen Hill, and most areas of Silver Spring are good bets, and these are close to Metrorail.

Maryann Haggerty: Advice to the would-be buyer discouraged by NoVa prices...

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Arlington, Va.: Two weeks is too long between chats!

Every chat you get the inevitable bubble question - Are we in a bubble? Aren't you saying you don't know because you're trying to be a neutral "moderator?" Surely you have an opinion on this. I think all the folks chatting here would be happy for you to forego neutrality to hear your opinion, knowing its just that.

Come on, we know you can't predict the future with certainty, no one can. But you certainly can tell us your educated guess.

Maryann Haggerty: Actually, here's my oft-stated reasoning: For years, I confidently predicted that we were in a bubble, based on my (too-long) knowledge of business cycles and my experience with bubbles past. And guess what? For nearly 4 years, I was stunningly wrong. So about a year ago, I swore that I would stop predicting, and just watch.

My only consolation in this: Just about every economist in the country has been wrong about this for several years, too. This price explosion is unprecedented, & there are good arguments to be made that in some ways, the underlying economy can support the pricing.

But here's one prediction I AM confident about: There is a bubble in the condo market in South Florida.

See, I'm not a complete wimp.

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Laurel, Md.: Hello everyone. I purchased a townhome years ago in very nice well established community in South Laurel. We have cookouts during the holidays and all of the neighbors know each other. As far as location is concerned, my advice is to drive through areas and talk to the residents, don't let the media or friends give a general perception about an area without investigating yourself. Or you can spend 700k or more and forefeit vacations, etc. The choice is yours. Also, when you hear stories about school districts, look at the details. They may surprise you.

Maryann Haggerty: More good, and good-hearted, advice.

That's a good point on the school districts. Our strongest districts are among the best in the country. That can make some very good school districts that would be stars elsewhere look weaker than they are. And even in our weakest districts, some students are learning. Or, in the case of DC, some parents are taking advantage of a broad array of school choices, including charter schools & tuition vouchers.

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Borrowing against your home: The reason your parents told you never to borrow against your home is that in case of problems such as job loss or major uninsured losses, you can lose your home. That is still true today and needs to be considered when either refinancing to take cash out or taking out an equity loan of whatever stripe: you are increasing your total debt. Are you sure you can carry the load, and are you sure the risk of not being able to do so in the future is acceptable. This is also the reason they wanted to own their homes free and clear before retirement: So they'd always have a place to live no matter what.

Maryann Haggerty: Yes, of course, a reminder to be cautious: If you get in over your head on debt--any kind of debt--you can face problems. And you CAN lose your house.

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Herndon, Va.: To remind all how crazy the market is in other places: My wife and I vacationed in Bend, Oregon, which is really booming - new houses going up on a nearby butte for $1 or 2 million+, a hot resale market, etc. On the way back to Portland, we stopped at Sisters - a small town which caters to tourists and looked at a new development outside town. You're in the "high desert" -- 10 inches or less of precipitation a year, no sewer lines, septic tanks needed, with water from wells in the aquifer. A one acre vacant lot (which did have great views of the surrounding mountains) was listed at $1,395,000! It's insane all over!

Maryann Haggerty: Ouch!

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Arlington, Va.: If home values keep going up at the rate they have been (roughly 20% per year), won't a married couple who buys a $500K property hit the capital gains cap in about 5-6 years? Would that encourage people to move more often? Are there plans to increase the $250K/$500K caps?

Maryann Haggerty: As far as I know, there are no plans to increase the cap. That is only an issue in the most inflated of markets. Most of the country still considers $500K a pretty handsome profit. If that were no loner the case, I could see Congress considering raising the cap.

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Washington, D.C.: More advice for first time home buyers. Don't think of it as a starter house, think of it as your first home. Yes, you may have to compromise on some things, but remember that it will be your home for at least several years. Choose wisely. You don't want to move in and immediately start counting the days until you move up to the house you really want. I spent 4 years in my first home, and recently moved up to my second (It is possible in this market if your timing and location are right). Both places were the right house for me at the right time.

Maryann Haggerty: Very well said.

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Fairfax, Va.: Since the market tanked in the late '80s, and was moribund for some years after, I decided that when I bought my starter home, I would buy a home -- not an investment. Having written that, I bought a home that is on the City of Fairfax's bus line. It is within walking distance to supermarkets. (If I ever sell it, the new owners would be able to save money by using public transportation or walking.) It's in a City with a fairly good school system. The City provides good services. The City has a good loan program for home improvements should the next home owner's family grow. Finally, I bought a home that could be my "ender" home if necessary. There are no steps, so as I age, I'll still be able to get around with the kitchen, bedroom, bathroom, and laundry room all on one floor.

Maryann Haggerty: Once upon a time, I thought that a house really needed steps to feel like a house. (You can tell I'm not from the Sunbelt, huh?) But more and more, I'm thinking that a house without steps could become a necessity some years hence.

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Washington, D.C.: I hope this is on topic: My sisters and I inherited the family house several years ago. They have lived there since. If we want to sell the house now and take advantage of the market, will I be required pay capital gains on the proceeds because I live elsewhere? If so, I'm thinking of moving in with them and waiting two years!

Maryann Haggerty: Yes, you actually would be required to pay taxes on your share. BUT--and please check with an accountant on this--you might be able to transfer your interest to them in some tax-advantaged way...

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Anonymous: Very nice homes can be found out here in Springfield, Virginia, which is accessible to lots of buses and also the Springfield line of the Metro subway. The train stops very near here also. We have tip-top schools here in Springfield, such as West Springfield High School. A nice home can be had for $400-500 thousand dollars here in West Springfield. Thanks. Carole

Maryann Haggerty: Someone else who likes where they live!

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Arlington, Va.: How long will gas prices have to stay high before they seriously affect the real estate market? I keep wondering if high gas prices will make the close-in burbs look even more attractive than they are now. But then again, I'm just happy that I'm close to Metro and don't have to deal with it.

Maryann Haggerty: I think gas prices would have to stick at a high point for a while. Americans really like their big yards.

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Woodbridge, Va.: Maryann...hi!

We're listing our 28-year-old home in two weeks, and are wondering, given the oil crisis that seems to be unfolding around us, whether it makes sense to emphasize the very low heating/cooling bills we have for the small two level rambler. Given the mature oaks that surround and cool the house in the summer and its being on a cul-de-sac, we think emphasizing the energy-efficiency of the humble home might well appeal to folks stunned by the rise in oil prices.

Thanks!

Maryann Haggerty: I think that would be a very good point to emphasize. Heating costs this winter are going to be simply outrageous, I fear.

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For Sale Signs Everywhere: Its seems that everywhere I turn around (and I am not even in the market!) I see a plethora of for sale signs. Are sellers wanting to cash out now, rather than wait for a potential burst?

Maryann Haggerty: Inventory of for-sale houses has indeed risen in recent weeks. But it was so, so low before that it might not presage a glut.

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Laurel, Md.: With the price of gas and oil skyrocketing, which will eventually lead to inflation of other goods, how can the fed be so aggressive at raising interest rates to slow down the real estate market. A market which has carried this economy.

Also, maybe there should be a deduction for commuters who commute more than 40 miles each way to and from work.

Maryann Haggerty: The Fed continues to aggressively raise rates in an attempt to tamp down some out of control portions of the economy. We'll see in coming weeks whether they hold fast to that philosophy in the face of what might turn into inflation. Remember, as far as Greenspan and Co. are considered, inflation is the big economic peril.

And can you seriously believe that our tax policy should favor gasoline consumption even more than it does now???

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Oakton, Va.: Maryann,

Maybe Florida should talk to someone knowledgeable on taxes. The long-term (held more than 1 year) for taxes is usually 15%.

Maryann Haggerty: Yes, but I got the distinct impression that this was not a long-term gain!

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Herndon, Va.: Is it true that historically the market picks up after Labor Day? What are the best ways to market the house not just locally but nationally?

Maryann Haggerty: Yes, the market does historically pick up after labor Day, and then slow again with the approach of the winter holidays.

Nationally, the most-viewed real estate web site is realtor.com; your agent should include that along with the regular MLS listing. Your ad in the Washington Post will go onto our Web site, which also has a national viewer ship. If you have a high-end home, the agent should also outline for you a more aggressive marketing plan that will include glossy magazines, etc. Don't have an agent? Well, I assume you have thought out your own marketing plan...

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Maryann Haggerty: I have to go, folks. It has been fun. Will the Washington chatter who counseled "Don't think of it as a starter house, think of it as your first home." please e-mail me a real-world address, to haggertym@washpost.com, so that I can send along a book?

Have a great weekend. And this weekend, of all weekends, please be thankful for whatever home you have. There are too many people now who have been horribly, horribly displaced & must live in conditions so bad that we can't even imagine what it's like.

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Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.


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