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Do Schools Really Affect Property Values?

Post image for Do Schools Really Affect Property Values?

by Ken Corsini on April 6, 2011 · 11 comments

  

In 2009 as I worked to complete my masters degree from Georgia Tech, I undertook a large research project to study the effects of the recession on housing values in Metro Atlanta. The purpose of the research was to identify changes in the demand for certain characteristics of residential properties as the market was falling. Essentially, we were interested in identifying changes in what buyers valued in a residential property in 2009 versus 2006.

In conducting the research we targeted Cobb County, a suburban county about 20 minutes northwest of downtown Atlanta. We looked at approximately 150 home sales from August 2006 and 150 home sales from August 2009. Using statistical analysis, we analyzed characteristics such as bedrooms, bathrooms, square footage, age, stories, garage, basement, general interior and exterior, school district, crime stats, median income, etc.  One of the most interesting takeaways from this research was the profound effect that a quality school district can have on the housing values in the surrounding community.

Quality Schools Do Affect Property Values

In our research, we used the website SchoolDigger.com which uses a 5-star rating system based on a number of different factors including enrollment, student/teacher ratios and test scores.  What we found was that properties near schools with a rating of 4 or 5 stars were almost completely insulated from declining values while those near schools with 1-3 stars experienced massive losses in value over that 3 year period.

As a full-time real estate investor, this information has dramatically affected my buying criteria.  While I am fully aware that there are many, many other factors to consider when buying an investment property, school districts have become much more important in my decision making.

For example, I was looking at a HUD home last week in Marietta, GA (Cobb County) as a possible long-term investment. It was a nice split level home built in 1980, located in a stable neighborhood with good comparable sales, but there was nothing particularly special about the house itself. Truthfully, if this house had been located in another Metro Atlanta area hit harder by foreclosures, I probably wouldn’t have bothered to look at it.  Or if I had considered the house in a less attractive area, I would have expected to pay at least $25,000 less than what I was prepared to bid on this property. In reality I was okay paying a slight premium for the property because of the location in a 4-star school district with strong comparable sales. Fully realizing that I would probably sacrifice some level of monthly cash flow in the short term, I concluded that the stability of real estate values in this area would make for a better long term investment.

Unfortunately, another investor thought this was a good buy as well and ended up bidding higher than I was willing to pay.  This perhaps serves as a great reminder that regardless of how good an area (or school district) is, the numbers still have to make sense.

Bottom line?  Yes, schools are an important consideration in the purchase of a property; however, several key factors need serious thought before placing that final bid.

Photo: Kamoteus (A Better Way)

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{ 9 comments… read them below or add one }

Jeff Brown April 6, 2011 at 10:55 am

Welcome, Ken — nothing like real data to uncover reality, eh? I’ve found your contention to be true in several states too. Though my gold standard is the so-called BawldGuy Mom Rule, (if you wouldn’t put Mom into a property to live alone, don’t bother me with it) the outstanding school correlation became clear over time. Ironically, in my experience, it’s an oft repeated mantra by many, but undervalued by most. It’s not rocket science, is it? Good stuff.

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John Evan Miller April 6, 2011 at 12:30 pm

Ken,
Very interesting to read that a school district has a much larger influence that other surrounding factors when it comes to real estate. Very surprising, it makes sense however. Great read. Love the blog!

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Ken Corsini April 7, 2011 at 11:57 am

Thanks Jeff – I couldn’t agree more on the “BawldGuy Mom Rule.” In fact, I wouldn’t be surprised if there was a VERY high correlation between Good Schools and the BawldGuy Mom Rule.

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Mike April 11, 2011 at 1:24 pm

Interesting analysis. Here in NJ the towns with the best school systems are definitely a lot pricier compared to neighboring towns, so I certainly agree with your findings.

That School Digger site is great! Quick question though…if a school has no number assigned to it does that mean it is a zero or that it isn’t ranked for some other reason?

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Kevin Sproul April 11, 2011 at 3:16 pm

So people still want their kids to get better educations? Shocking :)
This is one of those things we always suspected but now that somebody with the training has gone out and done the research, it is now a fact. Thank you Ken. This is great info. It could also help me get the Mrs. fully on board with my investment plans. She has a PhD and can probably make more sense of your thesis than I ever could. Can we see it?

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Ken Corsini April 11, 2011 at 6:18 pm

For those of you having trouble sleeping at night … here is a link to my thesis:

http://smartech.gatech.edu/handle/1853/31763

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Joshua Dorkin September 11, 2011 at 10:44 am

Ken – It looks like NAR has added this article to one of their Field Guide to Schools And The Home Buying Decision. Congrats.

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Mathieu Louis August 24, 2014 at 7:13 pm

I’m looking for a house in the Stone Mountain area. I found this beautiful home…The house is flawless..Beautiful inside and out…In fact, it looks like a mini-castle. Problem is…all the schools EXCEPT for 1 is below standard….the exception says it’s approaching standard. I love the house so much I don’t know what to you. Any advice would be greatly appreciated. I have 2 advanced degrees and my wife has a Ph.D but we are rookies at this!

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Janelle September 11, 2014 at 10:51 am

Go visit the one star school while it is in session. Walk the halls during a class change. Visit the cafeteria while students are eating. You will know in five minutes whether or not you want your children there.

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