why have cap rates not significantly risen despite lack of demand from serious buyers?

Buyer inquireies hav picked up a little, BUT hardly any of them are serious. Most buyers are still making lowball offers, and sellers just throw the offers in the garbage. HOWEVER, I am curious as to why simple supply and demand rules are not affecting prices. Seller's are still reluctant to sell at higer CAPs, even on distressed properties that they are losing money on. Too often we're at stalemates between buyers and sellers. Any insights to buyer/seller motivation in the current market?
In Market Conditions - Asked by Anand B. - Jun 21, 2009
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Answer(s)

Matthew O.
Broker/Agent
Lake Bluff, IL

The lowball offers you refer to are in fact the market now. Cap rates have jumped to the 10-12% range.

Jun 21, 2009
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Paul S.
Broker/Agent
Glendora, CA

Different areas of the country have changed different amounts ditto for property types. A Walgreen's would have sold at 6.5% a year of so ago and now I see them above 7. Areas that did not get as crazy as California for example are not going to change as much because the price never got very high relative to the income. However areas that are affected by the auto industry for example, are probably goig to take a big hit. It always takes sellers awhile to face reality. Reality and expectations rarely meet. Supply and demand is working its slow magic. Many sellers are "stuck" having purchased at a low cap with high leverage. Plan on seeing a lot of foreclosures in the near term.
Paul Sylvester, CCIM paulsylvester@remax.net

Jun 21, 2009
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Cutting Edge R.
Broker/Agent
Decatur, IL

I have noticed that banks are not cooperating with Buyers. Everybody involved wants the deal to happen except the bank. Buyers are also not so willing to put up the cash and expect the Sellers to carry more, which my Sellers are not willing to do.
If Buyers would step up to the plate with more cash, the banks would be more willing to lend on the mutitude of great deals!

Jun 21, 2009
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Loida C. K.
Developer
San Jose, CA

The answer depends on so many parameters. For instance in CA - where high value properties are - there are cities where you could find 10% cap for apartments, whereas in Silicon Valley (San Jose area) you should be happy with 7-8%. AND it also depends on you, as the investor, as to your cap rate preferences.
One general rule though - if you have the cash, you're king - so go ahead make an offer with a high cap rate for yourself!

Jun 26, 2009
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Joe R.
Broker/Agent
Mission Viejo, CA

Today's lowball offers could be around for 3 to 5 years which simply makes them offers. Property values don't just increase over time. There must be something driving demand to force prices up. Ask yourself what has to happen to drive prices up. This can very depending on the market you are concerned about but generally the ecomony needs to grow; lower unemployment, improved consumer confidence, available financing, sound financial markets..... What will not work is lending to the unqualified borrowers that hyper fueled the last r.e. bubble.

Aug 26, 2009
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Gregory G.
Broker/Agent
San Francisco, CA

CAPS have moved now.
http://www.gregorygarver.com

Sep 1, 2009
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Wes N.
Appraiser
San Diego, CA

In this market many investors are using price per door or square feet as there basis for price. Also Cap rates can be very misleading, is it actual or pro-forma, is it based on actual rents or 10-20% vacancy. Many of these factors can add disparity when using cap rate. We use many different cap rate modeling including the band of investment theory to our approach to value for property tax reduction. Please feel free to call us at 858-225-1200 to discuss how using this formal can be used on your next purchase decision.

Sep 10, 2009
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