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The State of Real Estate, April 2007

Home buyers pay a premium in top school districts
Silicon Valley/San Jose Business Journal - April 21, 2006
by Sharon Simonson

Did you send your child to school today well-prepared and rested? If so,
you may have taken a tiny step toward enhancing the value of your home.

Forget showy curbside flowers and the latest home fashions. A growing
body of academic research, including a new study of 2005 Silicon Valley
home sales, shows that students' academic performance at local public
schools plays a surprisingly strong role in determining the value of homes.

In Cupertino, a town renowned for its students' excellent state test
scores, the difference in home prices in the poorest-performing high
school's catchment area versus those in the best-performing high
school's area is $250,000, according to research from Palo Alto's Movoto

Home buyers were willing to pay a whopping $378,000 more to ensure their
children attended Los Gatos High School versus Leigh High School in the
Campbell Union High School District last year, according to an Movoto
analysis of comparable home sales on either side of the districts'
dividing line. Student performance scores were 15 percent higher for the
Los Gatos high school than Leigh on the state's Academic Performance
Index for the 2004-2005 school year.

The same kind of premium exists for homes in Mountain View's Miramonte
area, where some homes feed into the Los Altos elementary and
junior-high school district and others into Mountain View's. Miramonte
home buyers on average spent an additional $142,000 last year to buy a
home that fed into the Los Altos lower schools, where student
performance scores were 13 percent higher. Middle school and high school
scores do not differ that much.

Matthew Swenson, a Los Gatos Realtor who works for Alain Pinel, says the
magnitude of the $378,000 premium for Los Gatos High does not surprise
him at all.

"School districts are big for buyers in Los Gatos. Family is important,
and parents want to give their kids everything," he says. "If you spend
$1.5 million on a house, you want to give them what you believe is the
best opportunity."

Even buyers who don't have kids are often keyed into the strong
relationship between school quality and a home's re-sale value, he and
other agents say.

Swenson says, "I had a conversation with a buyer today. He said, 'I
don't care about schools, but I know it's important because when a down
market comes, the value of a good location is going to kick in. If the
market becomes a buyer's market, the seller with the premier home in the
premier location is going to fare the best and that includes schools'."

In the Los Gatos analysis, as in all probes of school quality and its
relationship with house prices, peeling out factors other than schools
such as disparate house size and neighborhoods that contribute to
housing value is the most difficult and important precursor. It's fairly
evident, for instance, that among Silicon Valley's socially aware a Los
Gatos address carries a cachet that a Campbell or San Jose address does
not, adding an unquantifiable price premium to Los Gatos homes relative
to those locations that is not directly related to schools.

In addition, the Los Gatos situation illustrates what Mr. Swenson and
others interviewed for this story say can be the difficulty of sorting
out which factor comes first: the good schools or the expensive homes
and well-educated, well-to-do parents that typically come with them.
Such parents generally put a premium on education, sending to schools
children poised to learn and perform well on standardized tests.

The Business Journal worked with Movoto, a Palo Alto Internet start-up
and brokerage, to reach its conclusions regarding the dollar premiums
attached to Silicon Valley homes in districts with high-scoring schools
on state performance exams. Movoto reviewed the sale of 334 Silicon
Valley single-family houses in 2005 in nearly a dozen towns and school
districts stretching from Menlo Park to San Jose. Fewer than five early
2006 sales were also included.

Movoto specializes in providing prospective home buyers with detailed
information on homes, schools, crime rates, resident demographics and
local home-sales data based on the regional multiple listing service and
public information drawn from such sources as the U.S. Census Bureau and
the state of California's Department of Education.

Dan Lorimer, a company co-founder and site architect of Movoto,
performed much of the analysis. His findings were based on the
relationship between home prices based on actual sales and the state's
academic performance index, or API, for the various schools. API scores
range from a low of 200 to a high of 1,000. The state's goal for all
schools is to score at least 800.

Movoto analyzed the data exclusively for the Business Journal in part
because it, too, wants to better understand how to quantify the
importance of school quality to home prices. In some cases the analysis
did not yield clear enough results to reach any conclusion, as in the
case of Palo Alto and Menlo Park-Atherton schools. Palo Alto High
School's 2004 API score is more than 200 points higher than that for
Menlo Park-Atherton High School, yet the price per square foot of
comparably sized three-bedroom, two-bath homes was virtually the same at
$732 in Palo Alto and $729 in Atherton.

"To me it would seem that you would see more of an effect" in the home
prices between the different high schools, Mr. Lorimer says. "It may be
that (the lower high-school API score) doesn't affect Atherton prices as
much because so many people send their kids to private schools."

In addition, he says, the homes in the two high schools' catchment areas
are not nearly as comparable as those in, say, Cupertino, which clouds
any conclusions further.

Nonetheless, the relationship between home prices and school quality has
been fairly strongly established in multiple academic studies by
researchers in locations as disparate as Ohio, North Carolina, Florida,
Connecticut and Reading, England. Invariably, they find that the better
quality the local schools, the higher priced the home.

"School quality is the most important cause of the variation in ...
house prices," concludes a 1996 study by David Brasington, an economist
at Louisiana State University in Baton Rouge, Louisiana, and his
then-dissertation advisor, Donald R. Haurin in the Departments of
Economics and Finance at Ohio State University. The study looked at
single-family homes in 134 school districts in six metropolitan areas.

In an interview, Mr. Brasington says his studies of Ohio schools have
shown that if school quality improves by 10 percent as measured on a
student proficiency test, then home prices in its catchment area rise by
2 percent. Other studies looking at Florida schools have found house
price increases of nearly 3 percent in similar circumstances and as much
as a 5 percent increase in a study of Connecticut home values.

A study of home prices in England by two professors at the London School
of Economics and Political Science and Williams College in Massachusetts
found, among other things, that a home well-suited for raising a family
carries an even higher price premium if it is in the catchment area of a
good school.

The same study found that expectations about future school quality also
affected prices, with home buyers discounting for risk if they found too
much variability in past school performance test scores. They also found
that home buyers really paid price premiums only to get into the very
best schools, and that home prices in mediocre or even poor schools were
not materially different.

SHARON SIMONSON covers real estate for the Business Journal. Reach her
at (408) 299-1853


CupertinoKeller Williams Malka Nagel MALKA NAGEL
Realtor - Keller Williams, Cupertino and Silicon Valley

Cell: (408) 472-2506
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