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School, what is it good for?
When it comes to home prices, school matters. Buyers will pay a premium to live near top schools.
August 30, 2004: 11:08 AM EDT
By Sarah Max, CNN/Money senior writer

BEND, Ore. (CNN/Money) There's even more to be said about the value of a good education. In real estate, a healthy school often begets a healthy housing market.

"Anecdotally, homes in good school districts sell faster and at higher prices," said National Association of Realtors spokesman Walter Molony.

The simple explanation is that parents with school-age children are willing to pay a premium for housing that gives their children access to superior schools. School data is now widely available, for free, on such sites as GreatSchools.net and HomeGain.com.

"In my town, property values differ based on what elementary school you're going to be in," added David Stiff, senior economist for Fiserv Case Shiller Weiss, in Cambridge, Mass. A house in a top school attendance zone the area surrounding a specific school would sell for at least 10 percent more than a similar house in a lesser school zone, he estimates.

In some areas, the difference in home values is even greater, said William Bainbridge, president and CEO of SchoolMatch.com and HouseAppreciation.com, which track school performance and property values for 15,530 different high school attendance zones.

The city of Chicago and the suburb of Park Ridge intersect on the same street, for example. Yet, home prices on the Park Ridge side are significantly higher than on the Chicago side, he said, because schools in Park Ridge are so much better.

Margaret Sullivan, executive vice president of the National Association of Independent Fee Appraisers said home values in her area, St. Louis, are affected not just by public schools but proximity to private schools and parochial schools. Appraisers usually take into consideration school performance when determining a home's value.

Cause or effect?

That houses near good schools sell for a premium is widely accepted. What is unclear, said Stiff, is whether top-notch schools boost housing values or whether rising home values (and property tax revenue) boost school performance.

It's possible that both are simply a reflection of the types of people moving into an area. "The performance of a school depends a lot on the families who attend them," he said.

It's also not clear whether school quality affects the rate at which home values appreciate. On the upside, houses in established neighborhoods may not have as much room to appreciate as property on the fringes. In down markets, however, houses that feed into good schools do tend to hold their value better, said Stiff. In other words, there is less price volatility.

Bainbridge argues that schools are a bigger force behind home prices. "We believe it is the school causing the property value to go up," said Bainbridge. "A few years ago, for example, Pine-Richland High School near Pittsburgh, Penn., brought in a fantastic superintendent," he said. "People started moving in because of the school, and then property values went up."

Also, the rate at which home prices appreciate does go hand in hand with school performance, he said.

To help illustrate this, CNN/Money asked Bainbridge for housing and school data in three randomly chosen metropolitan markets: Chicago, Denver and Pittsburgh.

Within each market, Bainbridge found five school zones with relatively high housing appreciation and five school zones with relatively low appreciation. After those areas were identified, he looked up each school's performance, which he rates on a scale of 0 to 99 using college entrance exams and the percentage of students taking those exams.

What we found was a clear correlation between school performance and housing appreciation. In fact, in the 15 zones with relatively high appreciation, the schools had an average rating of 90. In the 15 zones with relatively low appreciation, the schools had an average rating of just 32.

Not true everywhere

Of course, not everyone has school on the brain.

According to an NAR survey of buyers in 2003, 25 percent of buyers in the suburbs cited schools as an important factor in their buying decision. But in urban areas, only 12 percent of buyers ranked schools high on their list of priorities. Shopping, recreation and entertainment proved more important. In resort areas, meanwhile, only 8 percent of buyers ranked schools high on their list.

"There are only two places we have found school values going out the window," said Bainbridge. One is beach property and the other is what he calls "historically preserved areas," urban areas that are being redeveloped.

"The people in these areas either don't have children or are depending on private schools," he said.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.