How School Ratings Affect Your Home's Value

Written by Jon Long on May 4th, 2021

There's a lot to consider when buying a home. It's a decision that has huge consequences for your family and your finances! Potential homeowners must consider all the qualities of the home. Such as proximity to work (though that may be less important in a post-pandemic world) and the feel of the neighborhood.

Other aspects of the home you're probably thinking about include: square footage, the number of bathrooms, property taxes, and more everyday concerns like grocery shopping. And of course, your home's location determines where your kids go to school. So many choices! More information will help you feel more confident and optimistic about making these decisions!

Let's Get Schooled - Considering School Quality While Searching for Home

Homebuyers say that the neighborhood school has a big impact on whether they choose to purchase a home, and that shows in the numbers. Houses that are located within the boundaries of a higher-rated public school district are, on average, 49% more expensive than the national median listing price, and 77% more expensive than houses located within lower-rated districts.

If we look at the 2021 Home Buyers and Sellers Generational Trends Report (from the National Association of REALTORS® Research Group), we can see the generational trends very clearly. In the category of "Factors Influencing Neighborhood Choice," the quality of the school is the fifth most important for ages 22 - 55. For those over 55, the quality of the school isn't really considered, ranking close to the bottom of the 18 different factors listed.

Ranking It - How School Ratings Affect Home Values

It's helpful to consider how schools are rated. Some look to "input-based" measurements such as teacher-pupil ratio and per-pupil spending, while others prefer"output-based," such as standardized test scores.

A study conducted by Sandra Black in 1999 sought to control for the fact that better schools tend to be located in better neighborhoods. She felt that not using this control would vastly overestimate the value of school quality, as shown by test scores, on the prices of housing. But even after using controls to cross out certain variables, it was shown that better school quality (shown by an increase in test scores) has a positive effect on the price of houses.

Another study was done by John Wulsin in 2009. Wulsin stated that buying a home also buys families the right for their children to attend the public school in the home's district. His study used composite test scores to measure school quality. His work also used controls to ensure that the effects of school quality on housing prices not be overstated. Wulsin's study found that a 10% increase in elementary school scores leads to an 11% increase in the cost of housing, with the same results for middle school test scores. A 10% increase in high school scores leads to a 5% increase in housing prices. Wulsin again showed that raising a school's quality, as measured with test scores, leads to an increase in housing prices in that school attendance zone.

What About Private Schools in Lower Rated Public-School Areas?

Another idea would be to look at less desirable school districts, where houses are less expensive, and enroll the kids in private schools. The national average for private school tuition is about $890 per month (according to Private School Review), or $10,671 per year. If your child is enrolled in private school for 12 years, that would add up to $128,052 in tuition costs (that's if tuition costs don't rise during that time frame). You would need to add those costs to the house payment in a more affordable district, then compare the costs of a home in a more expensive public school district. You will also want to compare the difference in the property taxes, and more expensive houses also have steeper insurance costs.

Of course, if you have more than one child, your private school costs would be higher. But you also should consider that the higher cost of private school will only be with you while your kids are in school, while the cost of a more expensive home will continue after your kids have graduated and (possibly) moved out. (You never know these days!)

Good Schools Versus Bad Schools Vis-A︡-Vis Home Values

The Brookings Institution is a nonprofit organization that looks at societal issues. Their recent study found that there is a growing gap between the rich and poor. The average low-income student attends a school that scores at the 42nd percentile on state exams, while the average middle/high-income student attends a school that scores at the 61st percentile on state exams, and point out that low-income students would benefit from attending schools with higher scores.

Their research looked at the 100 largest metropolitan areas in the U.S. and shows that housing costs are nearly $11,000 more per year near high-scoring public schools. Home values are $205,000 higher on average in the neighborhoods with high-scoring schools, and those houses typically have 1.5 more rooms.

Brookings also took a look at restrictive zoning, finding that areas with the least restrictive zoning have much less of a housing cost gap. They recommended the elimination of restrictive zoning and reducing the housing cost gap, resulting in a projected lessening of the test-score gap by 4 - 7%.

What Buyers Are Looking For - How Do Schools Fit In?

Finding a house that meets all the needs of homeowners is a tall order! 2021 Home Buyers and Sellers Generational Trends Report looked at this question with prospective buyers of all ages. Their survey showed that buyers were looking at specifics like the ability to customize home design and efficiency of heating and cooling, but also more general concerns for the location of the home, such as:

• Neighborhood design
• Proximity to shopping, entertainment and/or leisure activities
• Ideal commute to work or school
• Proximity to family and friends
• Preferred school district
• Convenience to parks

Buyers will need to do their own informal surveys within the family, and rank what's most important with their new home and neighborhood, and how that will impact the choice of schools for the kids.

Connection Between Home Values and School Performance

The National Bureau of Economic Research looked at the question of whether spending more money on schools increases residential property values. The authors of the report admitted that it's difficult to do this perfectly since there are so many things at play. But after controlling for other factors that may affect property values, their results suggested that a $1 increase per student in school funding increased values by about $20. This shows that potential residents would value additional school spending.

Should You Buy A Home in a Lower-Rated School District?

Schools are just one piece of the puzzle. If you ask your kids, they might only care about whether they can see their friends, or missing their favorite teachers and their school's traditions.

Parks are a big draw, and the kids may have strong feelings about playgrounds. Are there dog parks? Good sidewalks? Does it feel safe to walk through the neighborhood? How old or big are the trees? Does the neighborhood share fun events like an Independence Day parade for kids, or an annual garage sale?

A house is a machine for living, and hopefully, families can quickly get an idea of how the house will work as their home. Does it need renovation, and if so, will the family be able to function successfully during the renovation process? There may be budget considerations with new appliances and furniture.

Broadband access has been more crucial than ever for success at work and at school, though hopefully it'll be less critical as the pandemic subsides. Does the prospective new neighborhood have solid internet access?

A family must think about all their needs, now and in the future. A number of studies show that shorter commutes mean greater happiness in life. Proximity to grandparents or other family members can also make everyone more content and can provide essential backup with childcare. Where your home is located will have unforeseen and surprising impacts on your life.

Buying a more affordable home may help the family budget, helping you to save more for college and other family needs. Maybe as a tradeoff, hiring tutors would help young scholars to qualify for better college scholarships.

Some schools that are lower ranked receive additional financing, grant funding or special support as a result. They could have options like the International Baccalaureate Program, which gives students a unique, challenging and diverse education. Because of the program's rigor, students are more prepared for the challenges of college and the world. It could be worth checking if a school with a low ranking also has an IB Program.

An Advanced Placement (AP) program could be a good option within a lower-ranking high school, and it could allow students to acquire college credits at little or no cost. Other options include homeschooling and focus programs that are like smaller schools tucked into the larger public high schools. Focus programs let students center their high school studies around the arts, science, entrepreneurship or trades. It's worth checking with the public school districts you're considering to see if they offer a focus program.

Other options, like charter schools or magnet schools, that are not as tied to your home's location, could also be considered.

GreatSchools - Making Some Good Schools Look Bad?

School ratings are one piece of the puzzle, and GreatSchools.org is widely used by prospective buyers. GreatSchools is a non-profit that originally visited schools in the San Francisco area and interviewed school principals, using this information to build their ratings. Because they couldn't visit every school in the nation, they needed to find another way to obtain data. They found it after No Child Left Behind passed Congress in 2001, which required standardized testing at all schools to measure students' proficiency in several academic subjects. Each state sets its own standards for proficiency. GreatSchools was able to use that data to compile ratings of schools. The proficiency data comprised about half of what GreatSchools used to create the ratings, with 1 being rated worst and 10 the best. A rating of 7 is considered above average.

There are concerns that the way GreatSchools looks at the data considers proficiency (how well students do) more than growth (how well the school helps students learn and improve). The higher ratings for proficiency almost always correspond with schools that are in higher income areas. Kids who come from affluent households are much less likely to experience food insecurity or lack of childcare and are more likely to do well on standardized tests. The way GreatSchools rates a school based on test scores may not reflect the quality of the school - the effectiveness of teaching and the school's ability to help students learn - but instead the school's good fortune at having students who are already prepared to excel.

GreatSchool ratings have an outsized effect on buyers' assessments of how "good" a school is. For families considering homes in different school districts, one of the first pieces of information they find would be a GreatSchool rating they come across through a web search. GreatSchools has become America's unofficial school rating system.

How GreatSchools Can Help in Selling a Home

Families need information to help them decide on schools and neighborhoods, and the GreatSchools ratings should help. Researchers need to continue to develop better ways to measure the effects of school quality on housing prices. More data on each school needs to be gathered to get a clearer picture of what makes a school "good."

A Home of Your Own

Finding a place to live is hard work, especially if you're striving for an ideal family life. Here in Orange County, CA you can find homes in some of the best school districts in cities like Yorba Linda, CA and Brea, CA. Choosing your kids' school is an important part of that work, and families nowadays are easily able to access the information they need to make a good choice. Everyone in the neighborhood knows that a great school will help protect property values.

Whether you choose a neighborhood with a school that ranks high or go with a more affordable neighborhood like La Habra, CA with a school that's still good, or look at private schools, the options are invigorating to consider. With more information to help you decide, you'll be able to feel that the future is bright for your kids!