December 24th, 2010

Should you spend more for a house to get better schools?



School With home prices and mortgage rates as low as they are, more parents are asking, “Is it worth buying a more expensive property in order to get my kids into a better school?”

If you ask Deanne Anderson what a top school is worth, she’s got a specific answer: 25 percent of your home’s value.

The Los Angeles area Realtor can be that specific because she sells homes in the small suburb of La Cañada Flintridge — a city of about 20,000 residents with two school districts. Kids living on the east side of the city attend La Cañada schools, which are consistently ranked among the top in the state. But a small western segment of town is locked out of La Cañada schools. Kids in the so-called “Sagebrush” area must attend school in La Crescenta, which also hosts great schools–just not quite as great or quite as consistent.

Impact on home prices

This seemingly subtle difference in school districts has a dramatic impact on home prices, says Anderson, who works for Coldwell Banker in La Cañada. Homes in the Sagebrush area sell for about $100 less a square foot than those in the La Cañada school district.

“There are plenty of buyers that only want the La Cañada school district and they’re willing to pay more to get it,” Anderson says. “We’ve had homes fall out of escrow when they realized that they were buying in La Cañada but not getting La Cañada schools.”

Research bears out: “Schools are an asset

La Cañada is just a microcosm of a national phenomenon, says David Figlio, professor of social policy and economics at Northwestern University in Evanston, Ill. Residential real estate prices react anytime you get a clear measure of school performance.

According to his research, housing prices in the A-rated districts immediately jumped 10 percent over those in areas where the schools were good, but not great–in other words, where the schools received B or even B+ grades. When schools proved consistently better over time, the price difference got wider.

In fact, Figlio’s research confirms Anderson’s evaluation almost to the percentage point. He says a consistently top district commands a 23 percent premium in housing prices over homes in even B+ school districts. While housing prices may rise and fall, this cost differential remains, and Realtors say houses in top school districts sell faster, too. But watch out if there’s any chance that the schools will deteriorate or re-zone, says Figlio.

“Schools are an asset,” he says. “Even people who don’t have kids are willing to pay more for houses in a good school district because they know that when they sell, they are going to be able to sell for more.”

Want to learn more about how the value of a home is impacted by the quality of the local schools? If so, continue reading our article “Should you spend more for a house to get better schools?

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One Response to “Should you spend more for a house to get better schools?”

  1. leaderscorp Says: December 31st, 2010 at 12:48 pm

    The cost approach to determining value is to estimate what it would cost to replace or reproduce the improvements as of the date of the appraisal, less the physical deterioration, the functional obsolescence and the economic obsolescence. The remainder is added to the land value.

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