10 Takeaways: How Schools Impact Home Values

March 30th, 2020

Selling | Buying | Realtors®
10 Takeaways: How Schools Impact Home Values

How Schools Impact Home Values and What type of Affects good and bad school districts have

When buying a home one of the most common questions we are asked is 'how do good or bad schools affect home values and what type of impact do they have?'

In fact, schools are so important to some of our buyers that we have given each school district it's own page on our website allowing buyers to search for homes by school district. Fortunately, the Raleigh area has some of the best schools in the state and that is why so many folks moving to North Carolina end up in Raleigh

There are countless factors that influence the decision to buy a home. The neighborhood, size of the home, outdoor space, upgrades, and location play a significant role in impacting ones’ decision making. Among those important factors, school districts have played an increasingly significant role in influencing buyers’ decision making around purchasing a home. Although those most interested in strong school districts tend to be families with young children or those planning on having children in the future, purchasing a home in a solid school district is beneficial for those who do not plan on having children as well. 

 In this article, we’ll dive into the various ways school districts impact property values, how buyers can research school districts prior to purchasing a home, and the difference in home values when buying in a high-performing school district vs. a lower-performing district.  

How do Schools Affect Property Values?

According to two decades of research conducted by Duke University, housing prices increase by $0.52 per square foot for every percentage point increase in school district PSSA scores (of students who score proficient or above). Economists have also estimated that a five percent improvement in test scores in suburban neighborhoods can raise home prices by 2.5 percent, according to The New York Times. Of course, test scores are only one way of designating an area as a “good school district” and there are other factors that should be considered as well, but test scores are a highly quotable measure.  

For many buyers considering buying a home in an affluent school district, they may be willing to spend more on a home to avoid the monumental cost of a private school, which can be as high as $20,000 or more per year in some areas. Although purchasing a home in a strong school district may mean paying a higher price for that home, it is still sometimes cheaper than investing in the costly expense of private school. Sellers who are aware of this trend may be able to get away with selling their homes above market value because they know many buyers are willing to pay a premium to be in certain school districts. When enough homes sell above market value in an area, the value of all homes in the area rise, thereby impacting home values. 

Of course, these statistics only apply to those who put their children in public school. Those who plan on putting their children in private schools will most likely place less emphasis on the quality of the school district and will spend more time considering the private school itself. With that being said, those who live close to highly regarded private schools can typically command higher home values due to their close proximity to the private school.  

How do Good Schools and Bad Schools Impact Home Values?

A study conducted by the Brookings Institution found that home values tend to be higher in areas where high-scoring schools are located. After researching one hundred of the largest metro areas in the United States, the study found an average difference of $205,000 in home prices between houses in high-performing school districts and low-performing school districts. Many homes located near high-performing schools were also found to be larger, with 1.5 more rooms than homes found in lower-performing school districts. Interestingly, rental options were also found to be around thirty percent lower in volume in high-performing school districts. Knowing this, it is safe to say that those living in good school districts will pay a considerable amount to reside there. 

What’s the Relationship Between Public School Ratings and Property Values? 

According to the National Bureau of Economic Research, there is a strong correlation between school expenditures and home values. A report titled, “School Spending Raises Property Values,” found that for every dollar spent on public schools in an area, home values increased by $20. These findings indicate that additional school expenditures have a beneficial impact on all homeowners in the community, whether those residents have children in the public school system or not. 

Does a New School Increase my Home Value?

According to a study published in the Economics of Education Review, students tend to score lower on testing in the first few years after a new school is built or renovated. This is primarily because new schools typically require additional construction projects while school is in session, which is distracting to students. However, after all construction is complete and students are no longer being disrupted, the study found that student test scores went back to what they were prior to construction. The students also seemed to benefit from the improvements made to the school over the long term.   

If your home is located in a district with a school that is currently undergoing construction and test scores have been negatively impacted, it may better to hold off on selling your home until the work is complete (if possible). Test scores will most likely increase after the capital improvements have been made, which will be a stronger selling point to buyers considering the school district. 

Is it OK to Buy a Home in a Not so Good School District?

When determining where to buy a home, it is advised to look at the bigger picture. What are other aspects of your ideal home you hope to find in addition to a good school district? Is having a big backyard important to you? What about bedroom count? Do you want to be within close proximity to work? 

Oftentimes, buyers become so consumed with the thought of needing to be in a good school district that they lose sight of other aspects of the home they would like. For example, if four-bedroom homes with ample square footage, outdoor space, and close proximity to your office are well above what you can afford in a good school district, it may best to look at less desirable school districts and consider putting your children in private school. Although many private schools are extremely expensive, they may be less than the cost of living in an affluent school district. Just to put that into perspective, let’s say private school tuition for your two children is $25,000 per year. If you multiply that by thirteen years, which is the time most children are in school (from ages 5 through 18), the total comes to $325,000. And, while that is a hefty price to pay for children’s education, do a comparison between that total and the amount you would spend to be in a good school district. Consider the price of the home itself, taxes, etc. Is there a significant difference? It is also advised to consider the sacrifice you will make to live in that school district. Will it mean living in a significantly smaller home? Will you have to give up that spacious backyard you would be able to get in a different school district? Will it make your commute time to work much longer? Depending on the circumstances, it may be worth it to move to a lower school district and consider putting the kids in private school.

How do I Find the Median Home Price in a School District?

To find the median home price in a school district, take all property sale prices in that school district and put them in order from lowest to highest. Then, look at the number in the middle of the list. That number is the median price for homes in that school district. In other words, it’s the middle number.

Here’s an example:

Let’s say there are 800 homes in the school district you’re considering. You would take the prices that all 800 homes sold for, put them in a list in ascending order, and then look at the 400th number on the list. That is the median home price for the school district you’re considering.  

How Does a School District Impact my Home Sale?

According to a study published by BiggerPockets.com, a real estate investor studied schools on SchoolDigger, which uses a five-star rating system based on student to teacher ratios, enrollment, test scores, and various other factors. Schools that had a rating of four or five stars were almost completely insulated from declining home values during a recession, whereas those with one to three stars experienced significant losses. 

Knowing this, it will be far easier to sell your home for what it is worth during market volatility. During times when the market is strong, you may even be able to command an above-market price point simply based on the school district where your home is located.  

Does Living in Walking Distance to a School Increase Home Value? 

According to a study published in the Journal of Agricultural and Applied Economics, homes that are located within close proximity to schools tend to have stronger property values, whereas those that are farther away have lower property values. The study focused on residential property values in Greenville, South Carolina and found that, overall, the most important factor impacting property values was the school’s ranking and overall level of excellence, the distance to and from the school was an important factor in increasing home values as well. 

Is it Good or Bad to Live Next to a School?

There are various pros and cons that should be weighed when determining whether or not it is best to live next to a school. For some, this will be extremely convenient. For others, they may find it to be a challenge. Living next to a school may give some parents peace of mind, particularly those who have children with allergies or medical needs. On the plus side, most elementary schools have playgrounds that are accessible to the public after school ends each day. This may be a positive selling point for families with young children. On the downside, schools tend to bring on higher levels of traffic during the morning drop-off and afternoon pick-up times which may bring on excessive traffic noise at certain points in the day. In addition to traffic noise, having a school within close proximity to your home may mean loud noise while the students are outside during recess. If you have an infant or toddler who naps during the day, the noise may pose an inconvenience. 

How Can I find a Good School District? 

Websites such as GreatSchools, Niche, and SchoolDigger are great resources for helping buyers review standardized test scores, average classroom size, student completion rates, and various other important factors. Buyers can also use these tools to narrow their search based on magnet schools, alternative schools, charter schools, special education, technical and vocational schools, and more.

After gathering some information, it is also advised to consult with your real estate agent on recommended school districts. Real estate agents typically live in neighborhoods where they help their clients buy and sell homes and their children may attend public schools. If they don’t, they will still most likely have important insights into the school district and the overall education system that you may not be able to find online. 

The bottom line on school districts:

Every child has unique needs when it comes to securing a fulfilling education. Some may thrive in a competitive environment whereas others may feel intimidated by their peers. In addition to weighing test scores, classroom size, and student performance, it is also important to consider the environment of the school to ensure it has a strong support system in place that advocates for student wellness. 

If you do not have children and do not plan on starting a family in the future, it is still beneficial to consider homes in strong school districts, as your home’s value will most likely continue to rise after purchasing it as a result of the school district.  Among the many benefits of working with a local real estate agent include consulting with them on districts, administrations, after-school programs, and various other education-related questions. They will also be able to advise whether or not you are overpaying for a home in a strong school district and if you have an appropriate list price in mind when considering selling your home.

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