Real Estate Live

Maryann Haggerty
Washington Post Real Estate Editor
Friday, December 15, 2006; 1:00 PM

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

Maryann has 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.

She's online twice a month to answer your questions about the local housing market -- from condos and investment properties to contracts and mortgages.

For more on local real estate, visit washingtonpost.com's Real Estate section.

The transcript follows.

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Maryann Haggerty: Hello, folks. Thanks for joining me on this chat.

I must admit that at this time of year, my thoughts turn more to nesting in a house than to buying and selling. But y'all have already sent in plenty of remarks, and I'll do my best to respond!

Feel free to jump in with your own observations, answers, etc....

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Hillsboro, Va.: Everyone talks about prices dropping, but, according to OFHEO, the price index for the Washington area jumped 11.11 percent in the third quarter, over the third quarter of last year. What gives? Are prices really dropping or not?

Maryann Haggerty: Different numbers measure different things. OFHEO looks at the value of the same house over time (based on a humongous database), single-family only, conforming loans only (ie, under$417K, inlcuding refis as well as purchases. It's not a perfect measure, but it's considered just about the best out there.

What it is likely signaling is that while SALES PRICES are down in many sectors from the superheated levels of 2005, values may not be down as much. It also underlines that changes have been different around the region and amojng housing types. Some of the most dramatic drops, for instance, have been in the condo market. And while some outer Virginia suburbs have also seen notable drops, other markets (notably PG) are chugging along.

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Philadelphia, Pa.: Do you have any suggestions on how to get a quick understanding of investment properties? An old family property that includes a cottage and small apartment building just came back on the market. This would be an investment property for my mom or could (maybe?) be a first time home purchase for me, or a dual purchase for us both. Since there are a lot of things to consider here (and a short timeline since it is currently on the market), I'm not sure where to start! Thank you very much for any tips.

Maryann Haggerty: Get yourself to a library or bookstore. There has been a lot written on the topic, too much to review in this format. Basically, real estate can be a good long term investment if the numbers on a particular property work for you.

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Washington, D.C.:

I am 24 and bought my first fixer upper in Congress Heights zero down a few months ago. I bought my home for $15,000 less than the other homes on the block. What kind of loans or programs are available for people who need to do rehab/remodeling with no home equity. I recently found out I make to much to qualify for any gov't assitance. I am not trying to make a fancy house, just comfortable and safe.

Maryann Haggerty: There are in fact loans available, but you do need to talk to a mortgage banker/broker to see what your options are.

I'm not endorsing a particular lender, but Countrywide, one of the biggies, has a Web site that provides an overview of some of your options, inlcuding FHA's 203(k) program, for which you might or might not qualify. : http://www.203k.net/

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Hyattsville, Md.: Hi, Maryann. Thanks for the terrific article about my neighborhood in last Saturday's real estate section! That's why I love the Post. I consider myself a pretty involved community member in what is a pretty active community, but your article shed new light on one of our developments. I'm glad to see that the developer's ties to the arts district are really working to attract artists! Thanks for the details.

washingtonpost.com: Missed that story? Read it here: In Hyattsville, a Creative Impulse, (Post, Dec. 9)

Maryann Haggerty: Thanks for the compliment!

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Frederick, Md.: Hello, Maryann. I have a question about buying a condo.

I found an affordable condo, and I liked its location. However, the complex has rather high percentage of renters. How do you think about the situation?

After I read an article by Lynne Thorne (Scoring the Best Nest), I became nervous about buying it. Do you have any advice about condo-ownership?

washingtonpost.com: Read the story: Scoring the Nest, (Express, Dec. 13)

Maryann Haggerty: You should be wary about buying a condo in a complex that is heavily rentals. Banks are reluctant to write mortgages in projects with more than 25% or 33% renters, for instance, which means sales can require owner financing. On top of that, absentee owners tend to dislike paying higher condo fees that resident owners may consider necessary to keep a building up to standards. And I have ansolutely nothing against renters as a group, but the reality is that renter-heavy buildings in some areas may have crowding issues, for instance in buildings where a three or more students may cram into a two-bedroom unit in order to afford the rent.

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Metro area: Maryann:

I have considerable equity in my house. I've really enjoyed living there but it's older and I would like to find something new. However, I'm person who prefers smaller spaces, which evidently means I'm limited to a condo or a four-story townhouse with more stairs than I'm willing to climb and no yard. Is there any development in the D.C. area that is incorporating bungalow/cottage type housing into it's McMansion and tall, thin townhome plan? I would like to have a garden and no shared walls.

Maryann Haggerty: Nothing immediately pops to mind. Land costs do push builders to build up. You might have a better chance at finding one-story places in a 55-plus community. Ideas. chatters?

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N.W., D.C.: I have just learned that people who rent their single family houses need a business license in D.C. But, if you haven't gotten the license because you didn't realize it, can tenants sue to recover all of their rent simply because you didn't have the license when they were there? Someone said this and it seems yikes!

Maryann Haggerty: Well, anyone can sue about anything. But I have a hard time believing someone could win such a suit. After all, in what way was the tenant damaged. Just go ahead and get the license now.

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Alexandria, Va.: Earlier in 2006, we signed a non-contingent sales contract with a builder in Montgomery County for a new home with an expected delivery date of May/June of 2007. The builder has since advanced the delivery date to March 2007. The builder required ten percent down and a loan commitment from a lender. The lender was one that the builder preferred we use. One of the loan conditions is the "sale and settlement of current primary residence." Our current home has been on the market since early October 2006 and we have yet to receive an offer. My question is, can the builder keep the deposit if you cannot secure a home loan even though you signed a non-contingent contract? Have other homebuyers been through this since the housing market has dropped off?

Maryann Haggerty: Builder contracts tend to be written to strongly favor the builder. We'll find you a story that ran in the Real Estate section last week that discusses those contracts.

On your specific question, I'm not sure. It sounds as if, if you are unable to secure financing, then indeed you may have an out. But I'm no lawyer, and you need to talk with one.

I will point out, though, that your house has not been on the market all that long.

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washingtonpost.com: Locked In, No Exit in Sight, (Post, Dec. 9)

Maryann Haggerty: Here's the story about builder contracts.

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Fairfax County: Not far from Vienna and Tysons Corner. What is the chance, in your opinion, that a house and 1/2 acre in a great location can be sold at a decent price in "as is" condition at this time? Meaning it would take a lot of work to bring it up to HGTV appearance and condition! Thanks!

Maryann Haggerty: What's a "decent" price? That's more than a rhetorical question. You'll get a better price on a spiffed-up house, but there are plenty of people out there looking for fixer-uppers, too. It's just that you need to recognize that these poeple are looking for those houses because they want to save money.

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RE: Foreclosures: Maryann,

With the big rise of foreclosures, where are these residents moving to? If they are foreclosing on a million dollar home, I don't think they are moving to an apartment.

Any ideas?

Maryann Haggerty: Actually, I would guess they ARE moving to apartments--or back home with mom and dad. It's not easy to get a mortgage at good terms with a foreclosure on your credit record.

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Fairfax, Va.: I just read about Daniel Island, S.C. in this month's Golf Digest and had some neighbors go to a recent seminar and they came away impressed. Have you or any chatters heard about it or know anything about it?

Maryann Haggerty: I must say, I receive zillions of press releases from developers of resort communities around the country, including Daniel Island. They all blur to me.

I would recommend that you visit any such community you are considering--don't make a decision based on a presentation in a Washington hotel meeting room! Some resort communities have been very successful (as early buyers in Hilton Head or Amelia Island would attest). But resort property can also be one of the most boom-and-bust types of developmeht out there (as generations of Florida land buyers can attest).

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Sterling, Va.: Why do developers keep building homes in Loudoun County? They number of mortgage delinquencies very high as the Post reported, especiallly to those who use ARMs. Maybe there should be a cooling off period in building to allow folks to swallow more reality pills.

Maryann Haggerty: The developers would say that they are doing so based on sound business plans and a realistic reading of a market place where there are no signs of slowing job creation, and thus no signs of slowing buyer demand in the long term.

I would add a note of skeptcism, based on the long-term observation that developers are programmed to develop and builders are programmed to build, just as lenders are programmed to lend.

I have also come to believe that while many developers can make sound business plans based on realistic estimates of demand, there are many out there who just can not bring themselves to understand the "supply" side of the equation, ie, they don't take into account that their competitors are also building in an attempt to tap that same demand. Each of them also seems to operate under the assumption that they have the best product, darn it, and so the competition hasn't got a chance.

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Up-a-Creek, Md.: We bought our house a year and a half ago, and took out a home equity loan to pay of some bills about six months after we bought. Prices in the area had gone up so much in the six months that we had no problem getting the home equity loan. Now, though, my husband has been transferred to Ohio. We've had our house on the market for more than nine months now, and have reduced the price three times and it still hasn't sold. We've had several offers at a lower price, but the price we have it listed at right now is the bare minimum we can sell it for and be able to pay off the mortgage and home equity loan. Our lender won't let us sell unless we can pay everything off, and we don't have any spare money. We thought about renting, but we live in a small town and there is no rental demand at all. Do you have any suggestions of what we can do? There must be other people in this situation, now that the market is softening.

Maryann Haggerty: I'm very sorry. This is, indeed, the worst-case scenario for many people. In the early '90s, when the market was soft, it was not uncommon for people in your situation to have to write a check at the settlement table when they sold. So, first, try to rent it if you can. If you must sell, you may have to take a loss. Sometimes it is possible to turn the house back to the bank in lieu of foreclosure and work out a payment plan.

What you DON'T want to do: Get yourself into any complex "rescue" plan with a third party that in some way involves you taking out MORE loans.

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RE: Investment: Are there any particular books you recommend or certain keywords to seek out? I went to the bookstore and just wasn't sure where to start. Thanks!

Maryann Haggerty: My office is stacked with literally hundreds of books on real estate, and I confess I have not read them all (by a long shot). I'm a fan of the "for Dummies" series. I find Robert Irwin's books quite clear, too. I would steer clear of anything that promises to make me rich quick, or a millionaire overnight.

In tomorrow's Real Estate section, we publish columnist Bob Bruss's annual list of his top picks among new real estate books, too. You may get some ideas there.

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Chevy Chase, Md.: My roommates and I recently moved out of a house in Friendship Heights we were renting, because our landlords decided to sell the house. Upon our move, we were each given a check to cover something called a "Topaz agreement." I have never heard of such a thing (but I like it! Free money!) I can't find anything online that explains what this agreement is. Can you tell me more about it?

Maryann Haggerty: In the District, what you received refers to your "TOPA" rights, or Tenant Opportunity to Purchase Act. That's the city law that gives tenants the first right to buy their home. Let me find a recent column we ran on that...

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washingtonpost.com: In the District, Tenants Get First Dibs When Their Homes Go Up for Sale, (Post, Nov. 11)

Maryann Haggerty:...And here you go. Here is Benny Kass's explanation of TOPA rights, as published last month...

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Fairfax County (again): What I meant was: Can I expect to get the full assessed value (around $600,000) and perhaps more or do folks expect a steep discount due to the need to do fixup or even tear down and start over. I know it is a rather vague question to answer. Thanks.

Maryann Haggerty: First: Ignore assessment value. That is the number the county puts on your house for tax purposes, and it is wrong more often than right.

What you want to consider is market value. How much has a similar perfect house nearby sold for recently? From that number, subtract the cost of renovation. Then assume the buyer expects a further discount on that. Why? Because.

If the house is a teardown, then the buyer is purchasing only the land--and indeed might expect a discount to take into account the cost of razing.

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Alexandria, Va.: We bought a house a month ago and are selling ours now ... not perfect timing, but oh well. While we have a realtor, what are some of the things we can do to drive people to our slightly secluded neighborhood?

Maryann Haggerty: Ouch.

Make sure that agent works for her money. Advertise everywhere you can think of. Have a nice Web listing with lots of photos. Make sure there's a brokers' open. (See tomorrow's Real Estate section for an article on the resurgence of this marketing technique.)

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Small House: Check out the Maryvale neighborhood in Rockville, Maryland. The homes are older, but many have been remodeled and you can get a three-bedroom for $350,000. It's a small three-bedroom, but no shared walls and plenty of yard for gardening.

Or since you have equity in your new place, sounds like you can do what we did (when we left Maryvale) and get a HELOC on your current place to use as a down-payment and renovation money for a new place.

Maryann Haggerty: Advice on a place to home-hunt when you're thinking small....

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Alexandria, Va.: Do you have any opinion on Cameron Station in Alexandria? I've visited that community a few times looking at townhouses, and think it has great charm. Several new townhomes are being built there, and I've been monitoring the prices closely. I've noticed that the builder has dropped prices on several different models by over $100,000 in the last year. I'm wondering if now would be a good time to buy or if I should wait it out longer in hopes of even more price reductions by the builder.

Maryann Haggerty: Cameron Station strikes me as a nice and very well situated neighborhood. (It's new construction remarkably close in because it's on an old military base.)

Many builders have dropped prices dramatically in the last year. What I simply CANNOT tell you is whether they will continue to do so. No one knows.

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Arlington, Va.: I inherited quite a very large sum of money. I've always rented, but now I plan to purchase a home. I plan to pay cash. Could you offer some pointers on how I should best do this? Is there anything in particular I should be on the lookout for?

Maryann Haggerty: First, please don't put all of your windfall immediately into a house. Instead, sit down and plan out the best way to diversify yourself with an eye to the long term.

This is commonly accepted wisdom among financial advisers, and it makes a lot of sense to me. A house is an illiquid investment. You need to make sure that you also have sufficient liquid cash or cash-like investments, as well as longer term investments in things such as stocks and bonds. You should also use as much of that cash as you need to in order to pay off ALL your non-real estate debt: Credit cards, student loans, cars. Only real estate debt is tax deductible.

Put down at least 20 percent as a cash down payment. (And remember you also need cash for closing costs and for those inevitable new-nest renovations.)I doubt I would EVER put down more than, say, 50 percent, unless my income was too low to get a loan otherwise. Take out a fixed-rate mortgage for the rest. (Make triply sure there's no prepayment penalty.) Then, spend some time in the house. Make sure it's not a lemon. If, after a few years, you feel you're going to stay for a good long time and you would feel better without that mortgage, accelerate your payments of principal if you wish, and if at your age and life station that makes sense.

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Prince William, Va.: For the person who wants a small house that is new and not a townhouse, there are lots of them in new developments. Many new developments feature 'new urban' layouts with relatively small houses. There are also one-level townhouses with interior courtyards.

Maryann Haggerty:...advice...

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Laytonsville, Md.: A suggestion for chatters offering ideas of neighborhoods to look in -- a ZIP code would be really helpful as then we can check them out in homesdatase or realtor.com.

Maryann Haggerty: Good idea.

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Arlington, Va.: Hi Maryann-

I've heard about a State Department program where they rent close-in, furnished homes for recently hired or transient employees.

I'm a townhouse owner who'd rather rent out my place through the State Dept. than have to deal with vetting tenents and dealing with late payments.

Unfortunately I can't find anything online about this program; do you know if it exists, and how I can find out more information?

Maryann Haggerty: That rings a vague bell, but I don't know whether such a program actually exists/still exists/is an urban legend. You might just want to call the department's public information office and ask.

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Arlington, Va.: Is there a general rule of thumb about when it is worth it to re-finance your mortgage? I seem to remember hearing that if you can drop one percentage point then it makes sense. I did an 80-10-10 jumbo mortgage over two years ago and now my total mortgage would fall into the conventional range. Just wondering what rate would make it worthwhile. Thanks!

Maryann Haggerty: Once upon a time, the rule was two percentage points, but that has long been out of date.

Instead, you want to figure out the costs of the loan vs. the savings, and see how long it takes you to amortize those costs. (Sometimes it can be no time at all, which makes a refi a no-brainer.)

With an 80-10-10, you may find it is really worth it to pin down today's lower fixed rates!

Also in tomorrow's Real Estate section: See Benny Kass's column, which discusses refis...

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Maryann Haggerty: Sorry, folks, I have to go. Thanks for spending the time.

Tomorrow, take a break from your holiday preparations if you can, and spend a few minutes with the Real Estate section. There's lot's of relevant advice, and it's more fun that looking for a parking spot at the mall...

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