Too Cool For School

How single family home resale value is impacted by school zoning

                It is commonly held knowledge in the Real Estate community that single family home values are closely tied to the quality (or perceived quality) of the nearby schools. Today I would like to dig a bit deeper into the numbers to determine how strong the correlation really is between home values and school ratings. Then we will take a look at what determines a schools rating and why your house’s resale value might be partially determined by the Mountain Dew and Minecraft addled brain of some tween!

“Using a huge database of about 407,000 home sales and nearly 11,000 elementary school districts in 57 metropolitan markets… on average, buyers pay $50 more per square foot for homes in top-rated school districts compared with homes served by average-rated schools.”(Washingtonpost.com written By Kenneth R. Harney October 4, 2013, study was conducted by Redfin.com)

                This quote is from a nationally published article written in October 4, 2013. Now what must be taken into account about this study, and most other similar studies, is that they do not control for other factors besides schools. But with that being said for the sake of simplicity we can take these numbers at face value.

Impact of School Ratings on Housing Market in Livermore, California. 

April - October 2014.

	South Livermore	North Livermore
Number of Houses Sold	21 Houses	20 Houses
Square Footage	1,500 - 1,700 sqft	1,500 - 1,700 sqft
Average Sale Price	$ 646,738	$ 580,975
Median Sale Price	$ 650,000	$ 600,000
Average Price per Square Foot	$ 403.52	$ 369.01
Median Price per Square Foot	$ 405.15	$ 379.11
Average School API Rank	8.8	6.7

Pictured in the table above ,I have done my own mini study in Livermore CA for the last six months. Twenty-one sold homes in South Livermore (south of the railroad tracks and west of Arroyo Road) that were between 1500 and 1700 square feet. For these homes the average sale price was $ 646,738 (median $ 650,000) and the average price per square foot was $ 403.52 (median $ 405.15.) For twenty sold homes of the same square footage (1500-1700), sold in the same time period but in North Livermore (north of the train tracks or East Avenue, east of Murrieta Blvd, west of South Vasco Road) the average sales price was $ 580,975 (median $ 600,000) and the average price per square foot was $ 369.01 (median $ 379.11.) I chose these two areas because the portion of South Livermore I chose is zoned for schools with and average rank of 8.8 (Emma Smith Elementary, Mendenhall Middle School, Joe Mitchell Elementary, Sunset Elementary and Granada High School.) Conversely the area of North Livermore that I sampled has an average school score of 6.7 (Junction K-8, Marilyn Avenue Elementary, Livermore High School, East Avenue Middle School, Jackson Avenue Elementary, Arroyo Seco Elementary School.) All Scores averaged from 2012 API state wide ranks provided in School accountability report cards. From this small sample (20 homes in North Livermore 21 in South Livermore) it would seem that in Livermore home values are affected heavily by school scores. Once again I would like to stress the fact that my study, like the one conducted by RedFin.com, does not take into account other factors such as: condition of the home, proximity to amenities, busyness of the street, and age of the structure. But I would add as an anecdote that in my personal experience as a Real Estate professional I have observed that school test score rankings have a high impact on the desirability and pricing of single family homes. We can safely say that there is a weighty correlation between school test score ranks and single family home prices, although no causation has been proven.

                So far it would seem to be the case that school rankings are indeed a big indicator in the resale value for homes. Now I will take a look into how schools are given their scores. Generally the scores that you will see when looking at schools in California is what is called an Academic Performance Index rank (API.) This is the 1-10 ranking that you see on Greatschools.com or next to a home’s schools on Zillow.com or Trulia.com. (Although Great schools claims to take into account the classroom size, and perhaps this is true because I did find some discrepancy between the score Greatschool.com provided and the actual API score.) Now the actual API score is actually between 200 and 1000 (it gets peeled down to 1-10 for simplicity and readability) and it is based on a smattering of standardized test given to students in the springtime before the end of the school year. That’s it, a schools rank is simply dependent on how its students perform on some multiple choice tests, covering English-Language arts, Mathematics, Science and History-Social Science. That means that your home’s resale value is in part determined by an eleven year old filling in a Scantron between Minecraft sessions. Ok perhaps I am taking it to the extreme, they probably don’t let eleven year olds play Minecraft at school between standardized tests, but it does seem crazy that schools are ranked in such a way when there are potentially many other factors that determine the quality of experience of the students at a given school.

                There is a deeper way to analyze an individual school. In the “School Accountability Report Card” which is a thick report, issued for each individual school each year, (10-20 pages), there are sections covering many aspects such as: the aforementioned standardized test scores, ethnic makeup of the schools, average classroom size, qualifications of the teachers, A breakdown of how the students scored on individual subjects, percentage of students meeting physical fitness state standards, the quality of the study materials, even the condition of the schools physical structures and many more measurable factors. But a composite report like this would not fit next to the school on the Zillow.com page. It is certainly not bite sized or easily consumed. So the whole report gets whittled down to one number, presumably for ease of use.

                The API score however will no longer be in use in its present form in California past 2014. There will be a two year Hiatus courtesy of the Governor of California Jerry Brown and the state legislature in Sacramento (Senate Bill 1458, passed in 2012). After the break the API rankings will return but it will not be calculated in the same way. What exact formulation it will take into account remains to be seen. It is supposed to combine test scores (60%) with other as yet undetermined factors (40 %.)  I personally hope that there is still Minecraft and Mountain Dew involved. (Let me know if you would like to see the specific sales I used in my study. Or if you have any specific questions concerning schools and Real Estate.)