Well... it's been a while and most know the status of things but just in case...
We were excited about the house and agreed upon price. Then we let our trusty home inspector loose on the place and, well, he inspected really well. While he spoke really well of the double masonry construction of the place, he found the dreaded termites. I think we would likely have been able to overcome the termites with some treatment but it turns out there were also issues with the drainage, basement dampness, and roof fungus.
Given the issues and the seller's unwillingness to adequately compensate us for them, we decide the best thing to do was sign a release based on our inspection contingency.
We also briefly toyed with the idea of just moving into something safe in South Riding but quickly abandoned that idea and will eventually continue pursuing something in Arlington or Alexandria.
For now, we're going to decorate the rental townhouse properly and relax and enjoy the holiday season. We'll begin the search again next year with a keen eye on the poor state of this economy - assuming we're not in an all-out recession by then, in which case, we'll hold off indefinitely:)