Effect on Property Values More Complicated Than You’d Guess

So, how big a premium do homes in stellar school districts fetch?

Conversely, how much of a discount is baked into the price of homes in poorly regarded school districts?

Two Sides of Same Coin

Step #1 is to realize that one size doesn’t fit all — that is, the discount/premium varies depending on several variables:

Such as:

–Exactly how much better (or worse) is the adjacent school district?  The bigger the absolute gap, the bigger the difference.

–Location within the district.  A home just outside a desirable school district — where kids can walk to a school bus stop — will be discounted less than a similar home far away from the boundary.  Of course, that’s assuming . . .

–Open enrollment policy.  What is the desirable district’s policy towards students who live outside the district?  The more open the policy, the smaller the discount for homes in the adjacent district(s); the more restrictive, the bigger the discount.

–Home size/features.  One would expect that a 1 BR/1 Bath condo — likely occupied by a couple or single — would have few or no school-age kids, and therefore the school district premium/discount would be small.

By contrast, a 4 BR/4 Bath home with over 3,500 square feet would probably be owned (at least at some point) by a family with several school-age kids, in which case the quality of the school district looms large.

Murky Comp’s

How does one begin to assign a value to all of the above variables?

If you’re lucky, you don’t have to:  there are one or more good Comp’s where that’s already been done.

The ideal match-up:  two identical homes on the same block or neighborhood, that both recently sold, and that straddle a school district boundary.**

In reality, the Comp’s are seldom that straightforward.

Either the homes vary in condition, style, or features; sold in different markets (more than six months apart); or the locations are not so identical.

Of course, it’s often the case that higher home values in areas with high-demand school districts can be attributed to other pluses as well, overstating the “good schools” premium (see below).

Cost-Benefit Analysis

Not everything associated with good schools is an unmitigated positive:  local property taxes can be higher, too.

Are good schools worth it, financially-speaking?

At least anecdotally, you’d guess “yes”:  that is, higher taxes are more than recouped by higher property values when it comes time to sell.

In the mean time, there can be many other benefits associated with good, local schools:  things like more cultural amenities; better and more interesting restaurants; well-cared for public spaces (and plenty of them); and better personal and community values.

It’s just not clear which is the chicken and which is the egg.

**Economists have a term for this:  “ceteris paribus,” the presumption that everything else remains the same.

See also, “Why the Neighbor’s House Usually Isn’t a Comp”; “Is There a Discount For Homes Located Across From a School?”; and “What’s It Worth?  Accounting for a Basement Bowling Alley (But Preferably Not)“.

Plus: “How Appraisers Account for a Bowling Alley in the Basement (Ideally)”; “Best Places to Live:  The Public Library Test”; and “Discounting for a One-Car Garage.”

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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