Do Homes in Good School Districts Cost More?

When you're buying a house, you may wonder what exactly goes into determining the value of a property. The appraised value is often based on an algorithm with variables including the home's actual construction, land values, location, and more.

In addition to reviewing the appraised value, you must decide how much a home is worth based on your tastes and factors like neighborhood demographics, crime rates, traffic, proximity to shopping, and other conveniences.

Home buyers with and without children often wonder how much influence the area's school districts have on a home's price. Here's what you need to know.

Great Schools Matter More than Good Schools

Although some argue that certain schools perform better due to being in a more affluent neighborhood rather than the other way around, it's hard to argue with statistics regarding the correlation between quality school districts and home prices.

A study found that the cost of homes in areas where the school districts were only average was based almost purely on the home's characteristics like size and location. In above-average school districts, however, properties are often priced well above what the characteristics of the home would have indicated. This suggests that only top-notch schools significantly impact home sale prices.

Buyer Statistics

According to the National Association of REALTORS®, approximately 25 percent of all buyers are concerned with the quality of school districts in their potential neighborhoods.

Forty percent of buyers at peak child-bearing age (36 and under) reported that school districts were a major influencing factor in choosing a home, as did 35 percent of those between the ages of 37 and 51. With such a large demographic citing this as a concern, it's unsurprising that school districts are a factor in determining home pricing. 

School District's Impact on Home Prices

Home buyers' next obvious question is: "How much more will a great school district cost me?" Economists estimate that a 5 percent improvement in a school district's test scores can increase home prices in the area by approximately 2.5 percent.

A study of metropolitan areas nationwide found that being in top-notch school districts can add an average of up to $50 per square foot to a home's price. This means buyers of a 2,000-square-foot home could shell out an extra $100,000 to be in a great district.

The Snowball Effect

When pricing homes, the supply and demand is a major factor. The simple fact is that only so many homes are available in the best school districts, and there are often more buyers than sellers. This means a bidding war may occur when a home goes up for sale in a desirable area, leading to homes being sold for well above the asking price. When the next home goes up for sale, appraisers use the most recent comparable sales to assess its value, and the snowball effect continues.

The bottom line is that buying a house in an area with excellent schools will likely cost you more. However, as long as the district retains its status, it should continue contributing to your home's value for years.

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