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Elizabeth Razzi
Washington Post Real Estate blogger and columnist
Friday, October 2, 2009; 1:00 PM

Post Real Estate editor and author Elizabeth Razzi discussed the local housing market -- from condos and investment properties to contracts and mortgages.

The transcript follows.

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Elizabeth Razzi: Hello, everyone. Glad to have you back for another chat. Comment volume is on the low side at the moment--so this is a great time to do a Kanye West and grab the microphone....

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Fredericksburg, Va.: Two years ago I bought a small lot near a river to build my home, I was also required to use BB&T bank appraiser, who made a serious mistake and noted this property was not in F,E,M,A, flood zone, now I am stuck with it. What recourse do I have, does bank have an obligation to buy back lot for original amount paid for it?

Elizabeth Razzi: So, I'm taking it that your home actually is within a FEMA flood zone? That flood zone designation really just determines whether the bank will require you to pay for a special flood insurance policy as a condition of getting the loan. I don't see why the bank would cover you for your own lack of due diligence. And you might want to call your insurance agent to get a price on a flood insurance policy ASAP.

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Waldorf, Md.: My wife and I bought a house in Waldorf in early 2007, about 12% from the peak for $500k - it's now worth roughly $350-380K. I fully expect the housing market to restart it's implosion after the current $8k handout expires - but even if it doesn't, the odds of it returning to our purchase price before 2020 are slim to none. We've already discussed it, and after consulting a friend who had to dump her house due to a divorce, we decided we're going to negotiate for a penalty-free short-sale sometime in the spring/early summer.

While we do like the house, and would stay if they'd adjust the balance to something within 10% of current value, we didn't put a dime down and have maybe $15k in the house between the patio and fence, so writing off $15k to get out from under $150k in negative equity (I'm expecting it to be closer to $200K+ negative by end of 2010) seems like an extremely obvious financial decision.

With that said, why are people so flipped out that we'd not sit there and get hosed for 10+ years to make the bank happy? The banks do not care about any of us, so why should we have any qualms about watching out for ourselves and making fiscally sound decisions?

(For anyone who might try to write this off as an affordability thing, our average age is 30, and our household income is roughly $180K at this time with very little debt)

Elizabeth Razzi: Hi, Waldorf,

Well, if you and your $180k joint income happen to have some savings tucked away, it would be reasonable for the bank to expect you to dig into that and pay back what you owe. Why should the bank--and the people who bought the securities that include your mortgage--cushion your loss? An important point that nobody seems to talk about: Mortgages have traditionally not been callable debt. Compare your home mortgage to a margin loan taken out from a stock broker to finance purchase of stock shares. If your stock value goes down below a certain level, the brokerage will issue a margin call. You have to pony up more cash or sell some stock, probably at a loss, to bring your indebtedness back into line with the value of the stock. Homeowners don't get margin calls from their mortgage lenders. Even if the house is worth less than the mortgage, you can continue to live there--without ponying up more cash to reduce the lender's risk--as long as you continue to pay your monthly debt. Maybe we'll start to see margin calls on mortgages if more people behave as you plan to.

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Pinole, Calif.: My husband and I are senior citizens receiving social security as our primary source of income. Recently we received a loan modification from Wachovia Bank. They modified our loan using income we receive from social security plus my husband's unemployment benefits. When I asked: Why was unemployment considered as part of our income when it is temporary income and with the job market being what it is, we probably will never work again. The loan specialist said that we could wait until the employment benefits ran out and reapply or we could take the offer now. What do you think and why?

Elizabeth Razzi: Loan modifications can include all sorts of things. There's no way for me to know if the modification Wachovia is offering would be only a temporary relief, or if the unpaid amounts are simply tacked on to the outstanding balance on the loan. You need to make sure you understand all those details. Then look at your own situation. How long are those unemployment benefits likely to last? Can you hang on to the home in the interim? Would you be able to afford the home, under the modified terms, after unemployment ran out? You could have trouble getting a second loan mod if things get worse, so think strategically. Good luck--and let us know what you decide.

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Woodbridge, Va.: We sold our townhouse right away - I really believe it's because of some fresh paint, updating door knobs, light fixtures, planting annuals, etc. Not that our house was "gross" before, but we wanted to make it stand out. Very excited!

Now we have to buy, but we may be in a short-term rental for a bit. I have looked at 30 or more homes so far (want a single family around here) and am wondering why there aren't more homes for sale. I have noticed that some homes are starting to come up, which is why going for a short-term rental doesn't bother me too much, but you'd think there were more single-family homes in the Woodbridge area for sale under $500K. Have you noticed if there is a trend of homes going up for sale more now that people are starting to buy? Or will it be a while?

Elizabeth Razzi: I've been hearing that the supply of homes on the market in the Washington area -- including Woodbridge-- is getting kind of sparse, especially among the nice, relatively affordable listings. Once we get into the November-December holidays new listings usually slow, so you could find yourself in the temporary rental until late winter/early spring, when there's usually an uptick in new listings. Biding your time in a month-to-month rental sounds like a good strategy to me. Anyone else have ideas on this?

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Laurel, Md.: Hello. If mortgage costs are the same, what is better to purchase - a newly built home or an existing home? Thanks.

Elizabeth Razzi: Hi, Laurel,

I suspect yours may be the "my spouse and I disagree" question for this week! Really, the new/existing home decision boils down to personal taste. The neighborhoods usually have a very different feel. Lot sizes are different, landscaping is different, even street layouts are different. New developments usually have a homeowners' association; older neighborhoods frequently do not. You may get a swimming pool, clubhouse or other amenities in a new development, but a mature tree canopy in an established neighborhood. So, the most difficult question of all is before you: What do you want?

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There is no loss for $180,000 couple: There's only a loss if they sell! They don't have to sell! The only reason they want to sell is so they can find a comparable house for less money! They HAVE the money to pay the mortgage, fer god's sake. What greedy yuppies.

Elizabeth Razzi: And the debate begins....

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Woodbridge, Va.: So if you made a ton of money when you sold your house would you give it all to the bank? No no, you only stick the bank with your big LOSS but you get to keep the big GAIN. Wow. Do you realize that in the grand scheme of things, other people will end up paying for your irresponsibility?

Elizabeth Razzi: another...

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I don't get Waldorf, Md.: You live in the house, right? So, what difference does it make what's it worth? You have to pay for wherever you live. So you would ruin your credit so you don't have to live in this house because it's not worth what you paid for, even though you live there and are getting the benefit of it? The whole thing makes no sense to me.

Elizabeth Razzi: and another...

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Anonymous: Margin calls on mortgages? That's awesome! Elizabeth! Never gonna happen... but it is the correct opposite of this put option Waldorf is trying to do.

But in seriousness, part of getting a bank to accept a short sale is convincing them that you can't pay. With $180k in income, I don't see how they're going to do that. Trying for a short sale could act as a good part in negotiating a principle reduction, but I don't think they're going to let you just walk away.

Elizabeth Razzi: I don't think they're going to be able to shield their savings, either.

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Downtown, D.C.: Given the high housing costs here, is it safe to say that a single person who pays about $400 per month in student loan repayments, no credit card debt, no car, and no help from family would need to make at least 100K per year to afford to buy anything within ten miles of downtown DC? Don't fancy commuting from Frederick into downtown DC everyday. I am looking to buy while it's less expensive so we are talking about within the next two years. I can't see having more than 10K for a down payment saved in that time and rents are getting any cheaper as well. Starting to think I should be looking to move out of area to a more affordable city. Curious to get input from others as well but not looking for specific advice to my situation as I know that would be impossible to give. I have to believe there are many in my position in this area.

Elizabeth Razzi: The price for living around here has always (at least for the multiple decades I've been here) the high cost of housing compared to most other cities. I don't see why you're so keen on buying right now, given that you're still seemingly unrooted in the area and have some significant education loans to pay off. I don't know--back in the day when I was single and paying off student loans, I lived in a group house with two or three others, took the bus to work and enjoyed life.

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Sell or rent from the last chat...: I decided to put the house up for sale/rent. If I get a sale -- yippee! If I get a renter -- yippee! I'll let you know what happens. I'm hoping for a sale.

Elizabeth Razzi: Thanks for the update!

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Owning property and buying other property: When I got married I had a house and my husband had a house. We live in his and rent mine. At some point in the very near future we want to buy a house together, but would like to keep my house as a rental and his house as a rental... how do we buy another house? Will lenders say no because we have two mortgages already? How does this work?

Elizabeth Razzi: All you need is very good cash flow--enough to convince the lender that you can afford the new house AND both investments, even if you have a couple of months of vacancies. That could be a pretty tough standard. Lenders will only consider part of your rental income as offsetting the mortgage. They expect you to have vacant months, unexpected repairs and that sort of cash-flow drama. And so should you! Good luck with the plan, if you can swing it.

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Howard County, Md.: I agree on the dearth of listings. I'm in Howard County and I'm seeing the same thing in lower price ranges. I would think that for under $300K, they'd want to put stuff on the market to appeal to folks eligible for the $8K tax credit, but maybe not.

We snagged a house (currently under contract with an owner-occupied house -- not foreclosure/short-sale) :) Very excited, and we'll likely make the Nov. 30 cutoff for the credit. To be fair, we already assumed we'd miss it, so it didn't matter that much to us as in the grand scheme of things, it's not that much money. Keeping our fingers crossed.

Elizabeth Razzi: Thanks for the report from the field. Good luck with the closing!

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Va.: I get the feeling this might be a tough one to answer, but I'd appreciate it if you could try.

We live in a development where all homes are custom-built by lot owners bringing in their own builders. It keeps the neighborhood from being too cookie-cutter, though there is some variation in the style, size, and quality of the houses.

Most of the neighborhood has been built up, though there is a lot available next to our house. Now it looks like there will soon be construction there. We aren't planning on selling anytime soon, so I'm just curious: will having a house there negatively or positively impact the value of our home? (the lots are fairly large, so we should still have our privacy). Does it largely depend on the type of house they build there? What impact does an empty lot next door have on a home's value?

Thanks.

Elizabeth Razzi: If it's always been a buildable lot, I would expect that your value wouldn't change. The assumption is that there would be a house there someday. Any real estate agents or appraisers out there want to chime in?

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Montgomery County, Md.: Do you see the high cost of living -- driving people out of this area or preventing others from moving here? Do employers such as nonprofits and others who pay lower salaries having a hard time attracting and keeping their best employees? Seems this area doesn't have much space for you if you aren't a high end lawyer, consultant, lobbyist etc. That group of people also seems exempt from the recession that is hitting the rest of us.

Elizabeth Razzi: Oh, they're not exempt from the recession at all. There have been layoffs among all those groups. Sure, high costs have always kept some people away from DC. But I think you're looking at cause-and-effect the wrong way. The steady flow of well-educated, ambitious, often-young people coming in to the Washington area drives the cost of living higher. The Wall Street Journal, btw, just named the D.C. area top of their list of hot, hip magnet cities for smart young people. I blogged about it this week, with a link to their story. We're tied with Seattle.

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Biding your time in a month-to-month rental : Get your prospective landlord's mortgage account number and verify the up-to-date status yourself before sending in each rent check. You want that month-to-month decision to be yours, not the court's.

Elizabeth Razzi: Sounds like the voice of sad experience here. There also are short-term rental apartments out there, though they tend to be pricey.

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Arlington, Va.: I was wondering if you would consider covering the issue of when an apartment converts to a condominium, which is the case in my building. There are a lot of issues in such cases, and Washington Post coverage would be very helpful. Also, thanks for answering two previous questions I submitted. I decided to run for board and was elected in September, so now I have to start doing real work.

Elizabeth Razzi: Be careful what you wish for! Seriously, congrats on your election. Maybe you could send me an e-mail about that conversion. Mostly I've been hearing of buildings switching the opposite way, from condo to rental.

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I make less than $100,000: I'm single with about $75,000 income, only about $150/month student loan, no credit card or other debt and I'm in the process of buying a new condo in D.C. Granted, I've saved up so I have the 3.5% min. down payment required by FHA and also enough for closing costs, and the condo isn't some huge fancy luxury place... but it's nice and it works for what I need/want. So, yes, it is possible to buy a place in D.C. with income less than $100,000

Elizabeth Razzi: Thanks for the advice to the other chatter. Congrats on your condo purchase; it sounds like you're very happy with your housing situation. The other chatter just didn't seem that sold on living in or near DC. Is that true?

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Re: Waldorf: I think they're just over-estimating their negotiating ability and/or position. If I'm the bank, I'll let that home go into foreclosure and drag the defaulters' into court to make up the difference, plus costs and reasonable attorney fees.

Elizabeth Razzi: Yep. And Post columnist Benny Kass wrote last week that he's been hearing of banks going after those unpaid debts, even after an approved short sale.

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D.C. Metro area: Do you see rents going down in this area anytime soon? Shouldn't they correlate in some way with the falling condo and house prices? Seems that the sky high rents here are still going up while incomes stagnate or fall.

Elizabeth Razzi: Well, rents have fallen--in some areas and for some types of residences. We've had stories in the Real Estate section about big concessions that have been offered on rentals near the Nationals ballpark. Sometimes the monthly rent doesn't decline much, but new renters get benefits like a month of free rent, or free parking. But, remember, there is still strong demand for nicely turned-out, well-located rentals--especially because people are hesitant to buy.

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Supply of housing - single family houses: In my humble opinion, people are not selling because they may not be able to recoup their down payments or would have to sell at a loss or just waiting the market out until prices start to increase.

Elizabeth Razzi: You may have something there. Also, with jobs still shaky, some people just don't want to mess with their housing situation if they don't have to. Why commit to a bigger house payment if you don't have to?

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Nags Head, N.C.: This is in response to Fredericksburg who bought a river-side lot that turned out to be in a FEMA flood zone. We had the opposite experience. Bought our specific lot here because it was NOT in a flood zone, built our house, and then the city (or state, not sure which) had all lots re-evaluated and they decided that yes, we are indeed in a flood zone. (We are half-way between ocean and sound, about half a mile from each; this particular section has never, in fact, been flooded so far as I know.) So then they had to measure the bottom of our house vis-a-vis flood plain regulations, which had not been important when we built, and turns out we are something like 10" too low to escape buying flood insurance.

So we have to pay for flood insurance. Turns out it is not so terrible; it's only about $300 a year. Wind and hail, on the other hand, costs a bundle, several thousand dollars a year.

Moral of the story: If he likes the riverside location, which is probably beautiful, just make sure to work with the architect and builder to make sure the lowest living space of the house is above grade enough to fit FEMA requirements. Check out the cost of flood insurance; might be surprising to find it is not really all that onerous. If you want to live by the water, just build accordingly, enjoy the house, enjoy the view, and don't put anything priceless on the lowest level.

Elizabeth Razzi: Good advice. Some FEMA flood maps have been out-of-date. And flooding trends do change over time. Regardless, if you live anywhere near the water, you ought to plan on a worst-case storm. I mean, why not?

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"What impact does an empty lot next door have on a home's value? ": If that's your biggest concern, go have a nice day.

Elizabeth Razzi: Okay, my guess is your day isn't going so well...

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I dunno...: I bought a house in D.C. in 2002 when I earned $45k. It cost $177,500. My interest rate was 5.375 percent. It's worth (what someone is willing to pay for it, obviously but based on comps my real estate agent just provided for me) about $300K now.

I think what people want is the DREAM home in the DREAM location. Sometimes you have to be a pioneer.

Elizabeth Razzi: Thanks for sharing that. So....do you like your house and neighborhood?

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Washington, D.C.: Good afternoon. I live in a condo building with several major projects looming and low reserves. Which would be better/worse for resale value: High monthly fees, or moderate monthly fees with significant special assessments over the next few years? Practically they're the same, but maybe there's a difference in image? Don't bother asking about the underlying necessity; very long story. Thanks!

Elizabeth Razzi: People hate the unexpected and unbudgeted. If your fees are high, they know what they're getting into. If you have a history of a big special assessment every year or two--and a still-unstable reserve situation, then buyers will assume there's an unending stream of big bills coming their way. It's so much fairer to pay-as-you go. Why should a new resident have to pay for the maintenance that was NOT paid for by previous owners?

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Burke, Va.: Where I'm looking, the listings under $450k are completely dominated by short sales. I think there are literally 4 shorts for every 1 "organic" lister. What in the world happens to such a market?

The shorts are closing, given 4-6 months. And the real sales are commanding a 10% premium over shorts if not more. How does this end?

As you might guess, we're in a short sale contract now (past the point where we can void at any time with 3 days notice), but not seeing anything else to jump on that's not also a short.

In a "normal" market buyers can find a house and close in like 3 months, but it takes like 6 months for a seller to sell. In this market any buyer who cares about price has to wait indefinitely 4-6 months if they're lucky in order to buy.

And who's saving money here? The banks, by avoiding the costs of foreclosure. I don't see who else is winning.

Elizabeth Razzi: Thanks for sharing that. I really don't understand why banks aren't finding a way to unload these homes more promptly.

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Stafford, Va.: This is a real estate tax question so don't know if it really fits but... we are planning to sell our house in three years. Whichever way the market goes we plan on making at least $100,000k in profit. My question is, how much of this is taxed and if we buy another house equal to the price we sold our house for, is there any tax? Thanks.

Elizabeth Razzi: It doesn't matter whether you buy another house--at any price--or move into a tent in the woods, for that matter. Tax law says you can keep up to $250,000 in capital gain (profit) on the sale of your principal residence as a single person. It goes to $500,000 for a married couple. You have to have lived there for at least two out of the five years before the sale. There was an old tax law that used to require that you replaced the home with a new residence that was at least as expensive as the one you sold--but that law has been gone for a long time.

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Re: I dunno: Where can one buy a 177K house in this area now? Seems D.C. went from being expensive to unaffordable from 2000-2006 when prices doubled in most areas. Incomes didn't go up quite so fast.

Elizabeth Razzi: There are neighborhoods in DC where prices are still quite low. They're not ritzy, but many people already call them home.

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Florida: True story: we built at 10' above sea level, knowing we would need flood insurance. What we didn't know was that our master shower drain -- the lowest point in the house -- dropped to 9'10", putting us into another bracket of flood risk. That drain costs us about $200/year more than if it were a couple inches higher. Just a little something for your architect.

Elizabeth Razzi: Ouch.

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Do I like my house and neighborhood?: Nope, I LOVE them. Live in Riggs Park, it's very residential and pretty quiet, which was something I wanted as opposed to being near bars and such. I have a yard and a patio and a finished basement.

But I just wanted to point out that when some folks say "there is no affordable housing in D.C." what they really mean is "there is no affordable housing west of the park." You -can- get a house/condo in D.C.

Elizabeth Razzi: Yay! Glad you're happy -- and you make an important point. Thanks.

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We're going to negotiate for a penalty-free short-sale: You only qualify for a short sale if you're facing foreclosure. You'd have to stop paying your mortgage and face foreclosure and all that entails. You're ABLE to pay, so you have to pay or it's stealing.

Elizabeth Razzi: You don't' necessarily have to be behind on payments yet -- but you're right. The bank only okays a short sale if the alternative is worse.

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Supply of housing - single family houses: In my humble opinion, people are not selling because they may not be able to recoup their down payments or would have to sell at a loss or just waiting the market out until prices start to increase.

Elizabeth Razzi: Thanks.

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Washington, D.C.: Hahaha - not exempt from layoffs. That person should talk to the huge smattering of lawyers that have been consistently laid off around this city over the last year. Things might start to be picking up, but I have a ton of friends who have lost their jobs. And, think of having a $150k debt on your back on top of not having a job. Doesn't look so great now.

Elizabeth Razzi: true...

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Washington, D.C.: Hi - I've been trying to refinance a condo that I bought without a problem 3 years ago. However, I am having trouble as one person owns more than 10% of the units in my building which is an issue with FHA guidelines. This wasn't a problem when I secured my first loan, but is now. Are there any options that are available to work with this problem or am I trapped in my loan until the other person's ownership decreases below the 10%?

Thanks!

Elizabeth Razzi: I don't know of a way out of that trap. Anyone?

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Alexandria, Va.: Hi Elizabeth, I have a mortgage w/Wells Fargo. Want to refinance under the refinancing program offered by the Obama administration. Was told I don't qualify because my LTV is 77%. The rep also stated my house is worth too much to qualify for the program -- found out that Wells Fargo is going by the value of the house when I purchased it in 2007. Like everyone else in the region, my house's value is nowhere near 2007 housing values. My question is -- is what the Wells Fargo rep stated sound right to you? I had thought they were supposed to use today's appraisal values to determine whether someone qualifies for refinancing. Thanks for the help!

Elizabeth Razzi: If lenders were using 2007 appraised values, few would need help with a refinance. Find someone else to talk to at Wells Fargo. And consider getting a HUD-approved housing counselor to help. You can find links to them, and lots of resources, on the HUD.gov web site.

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California: Hi, I'm going to be renting a house. Is there a public web site that I can use to find out if the home is current on its property taxes or on its way to foreclosure?

Thanks and love the chats!

Elizabeth Razzi: Thanks for the kind words on the chat! Such a web site would be convenient--but I don't know that I'd even trust it. Do some legwork on your own. Check with the tax assessment office in your community and verify that their taxes are current. And you can ask the landlord for information about his or her mortgage company, so you can verify that payments are current. The landlord can say no, of course, but given the current environment, it's in the landlord's interest to help you get that reassurance.

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Elizabeth Razzi: Thanks for contributing to the chat this week! Saturday's Real Estate addresses one of the hottest issues in the marketplace right now--appraisals. Renae Merle tackles why are they causing so much trouble, and what can buyers and sellers do about them? Dina ElBoghdady has some important news about what could be the next page in the economic story, when adjustable-rate mortgages adjust. I'll be blogging daily at at washingtonpost.com/localaddress. And see you next time!

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Editor's Note: washingtonpost.com moderators retain editorial control over Discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.


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