Understanding The Value of a Good School in a Declining Market
Plenty of Buyers Underestimate the Importance of Proximity to Schools
Prospective home buyers don’t always think about schools when looking for a home especially when they don’t have children or they’ve grown up and moved out. In fact, according to the 2010 National Association of REALTORS® Profile of Home Buyers and Sellers, only 25% of home buyers listed school quality and 19% listed proximity to schools as deciding factors in their home purchase. Nonetheless, the impact of schools on property values is well documented, and previous research has established that people bid more for houses in high-performing school districts.
Good Schools can Insulate Homes from Declining Values
What role does proximity to good schools play in a declining market? When housing markets go south, “areas with exceptional schools tend to hold their value better than the market overall,” says Michael Sklarz, president of Collateral Analytics, a Honolulu-based firm that specializes in real estate data analysis. Sklarz’ nation-wide research revealed that home prices have dropped in areas with good schools, but the declines are typically nowhere near the levels in their surrounding metro areas:
In Irvine, Calif., a city that regularly gets national attention for its quality schools, average price per square foot has fallen 18% since its 2006 peak, but prices in the greater metro area surrounding Irvine fell 33%. The same goes for Edina, Minn., where prices per square foot are down about 14% since their peak, versus 27% for the greater Minneapolis area. And in the brainy town of Andover, Mass., prices are down just 4%, versus more than 16% for the Boston metro division.
Similarly , Ken Corsini at Georgia Tech undertook a research project to study the effects of the recession on housing values in Metro Atlanta. The purpose of the research was to identify changes in the demand for certain characteristics of residential properties as the market was falling. Looking at approximately 150 home sales from August 2006 and 150 home sales from August 2009, Corsini concluded that:
…properties near schools with a rating of 4 or 5 stars were almost completely insulated from declining values while those near schools with 1-3 stars experienced massive losses in value over that 3 year period.
Clearly there are various factors at play here…and plenty of room for debate ranging from “what makes a good school” to “how much are property values in fact influenced by good parents”. Regardless of where you stand on these matters, you’d be remiss to underestimate the importance of schools – especially in an age of budget cuts and bankrupt municipalities, where the gap between successful and under-performing schools is likely to widen.
Finding out More about Schools
So, what research should you be doing as you are looking for a home to buy? If you don’t have children and don’t plan to have any while in this home, you likely can get a comfort level after doing only some basic research. Take a look at GreatSchools and SchoolDigger: along with useful statistics, GreatSchools will rank the schools on a scale of 1-10 and also posts reader reviews; SchoolDigger ranks on a 5-star system and also shows rankings by test scores. Homes for sale in a school district with unusually low rankings compared to surrounding school districts shouldn’t necessarily be eliminated but should give you pause and perhaps reason for further research. And remember to check the availability of nearby Private Schools- a quality private or charter school can raise property values as well.
