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What do School Test Scores Mean for the Value of Your Home?

It used to be that proximity to cities was a key factor influencing home prices. Not any more. An increasingly large amount of evidence garnered from academic research indicates that test scores at public schools are very influential when it comes to determining the value of area homes. While "location, location, location" is still paramount, the factors that influence the desirability of a given location are clearly changing. Test scores are now influencing property prices more than ever before, because they make it easier to compare schools across the country as well as within a district.

Homes in Higher-Performing School Districts Command Higher Prices

In April 2006, the Silicon Valley/San Jose Business Journal published a study of homes in the Silicon Valley area that reviewed the sale of 334 homes in the year 2005 in several different school districts. In Cupertino, for example, there was a difference of over $250,000 in value between homes in poorly-performing school districts and the homes in the district with the best-performing school. The Silicon Valley high school district of Freemont Union contains five high schools - all high-quality but with slight variations in Academic Performance Index (API). Homes within the boundary of the highest-performing school commanded much higher prices than those within the boundary of the school with the lowest test scores. According to one agent, a house that would sell for $780,000 in the lowest-performing area would easily sell for over $1 million in the highest-performing area.

A study carried out in Ohio and published in the Journal of Regional Science in July 2006 found that an increase of 20 percentage points in the pass rate of school proficiency tests correlated to an increase in the district's house values of about 7%. The researchers who investigated this issue examined nearly 78,000 house-buying transactions carried out in 2000 in 310 different school districts in seven areas of urban Ohio.

Newspaper articles and news Web sites are full of stories about parents who have paid top dollar on the basis of school test scores, hoping to increase their children's chances of scholastic success. And real estate agents often use test scores as a means of generating interest in properties, too.

There's no doubt about it - more and more parents are putting a district with good schools at the top of their list when it comes to house-hunting, and the number one criteria they use to judge whether or not a school is good is the API. Some parents refuse to consider districts with schools scoring lower than a pre-determined amount, regardless of whether it's convenient for work and amenities. However, some researchers believe that API alone is not necessarily the best way of judging the quality of a school. They suggest that looking at a school's performance over time is a more accurate means of judging the quality of a school. Either way, it's clear that higher school test scores equate to increased property values.

This isn't just a consideration for families, either. Smart property buyers who know that school test scores are becoming more and more influential are just as eager to snap up bargains in the more popular school districts. They see high-quality schools as "insurance" - even if the real estate market slows, a property in a district with good schools will still fetch a premium price thanks to the influence of school test scores.

Republished with Permission from
© 2008, HouseValues Inc.