How schools impact property values

Jodi Nordahl-Homes, Realtor, Broker Associate
Jodi Nordahl-Homes, Realtor, Broker Associate
Published on August 31, 2023

 

Take a look at your new home wish list. You’ve undoubtedly included the number of bedrooms and bathrooms you need, listed the amenities you hope to find, and perhaps even the type of neighborhood you hope to live in.

One aspect of the home purchase that few buyers consider is the house’s future resale value. Sure, you don’t have a crystal ball with which to read the future, but housing market experts and economists have studied home values for decades and understand the issues that impact value, both positively and negatively.

Since your home is also a hefty investment, jot down the words “resale value” on your wish list and read on to learn why, whether you have children or don’t, purchasing in a good school district is a wise decision.

The studies

The multitudes of studies on the influence of nearby schools on property values all agree that a good school district positively impacts value.

One study, with results published at BiggerPockets.com, claims that homes near schools with a 4 or 5-star rating at SchoolDigger.com held their value better during the Great Recession than those near schools with fewer stars.

David Figlio, a professor at Northwestern University, noticed that in Florida, homes near schools that had been awarded an A rating by the state realized an additional $50,000 in value versus homes near those schools with a B rating (Wall Street Journal).

“A study done by the National Bureau of Economic Research found that home values increased $20 for every dollar spent on public schools in a community,” according to a report from the National Association of REALTORS®.

Buyers agree

When the National Association of REALTORS® interviewed homebuyers for their “Profile of Home Buyers and Sellers, ” 25 percent of them wanted to live in a “quality” school district.

More significantly, for home sellers, 53.3 percent of those interviewed expressed a willingness to exceed their budget for such a home. The NAR broke that number down further:

  • 6 percent of buyers are willing to pay one to five percent above their home purchasing budget.
  • 7 percent will pay six to 10 percent above budget.
  • Almost nine percent would pay 11 to 20 percent above budget.

What makes a school district “good?”

One of the most common determinants of school quality is test scores. For instance, GreatSchools.org bases its ratings primarily on test scores.

U.S. News’ annual “Best High Schools” rankings are based on three criteria:

  • State-mandated test scores.
  • How effectively the school educates its minority and disadvantaged students.
  • Participation in and performance on International Baccalaureate (IB) and Advanced Placement (AP) exams.

Interestingly, a recent study sponsored by the Andrew W. Mellon Foundation suggests that “mean test scores are significantly related to property values.”

How much more is a good school district worth?

Determining a dollar value on the additional home values in high-performing school districts seems to be the only area the experts disagree on. One study claims that homes in school districts with high test scores are worth $16,000 more than similar homes in poor-performing districts. (Refs 6)

A Brookings report claims that, on average, homes in high-scoring school districts are worth $205,000 or more than those in low-scoring districts. (Refs 7)

Figlio says homes in top districts net a 23 percent premium over homes in other districts. The best news, at least from the professor, is that no matter the fortune of the housing market – whether it is rising or falling – the premium remains consistent. (Refs 8)

 

Proceed with caution

Doing your research is the key to shopping for a home with a quality school district as your top criterion. Two game changers to watch out for are the deterioration of quality schools and rezoning.

Check recent elections for how residents voted on school bond issues. A well-financed school is a good sign.

Inquire as to the teacher turnover rate. When many teachers leave a district for greener pastures, it may be a sign that the quality of the schools is going downhill.

Rezoning a school district typically occurs due to overcrowding. A few years back, Las Vegas parents with children in the Clark County Schools District discovered that 17 schools would be rezoned because of overcrowding and a lack of funds to build new schools.

Some schools subject to rezoning are located in the pricey Summerlin area of Las Vegas, where many folks paid a premium for their homes because of the area’s outstanding schools.

Although current Givens Elementary School students aren’t affected, homeowners who recently moved to the area hoping to enroll their child in the highly rated school will now be directed to one of two other schools with substantially lower scores.

Determining whether a school district will decide to rezone is challenging. Check the school board’s cap on enrollment, and if your school of choice seems to be approaching or exceeding it, proceed with caution.

Although the size and price of a home are always key components when considering the purchase of a home, choosing a home in the best school district you can afford is also an important factor.

When considering the home’s future value, the quality of the school district sometimes trumps all other considerations.

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