Home buying 101: Good schools = high property values

By STEFANIE MATTESON, Staff Writer

The formula is familiar to every real estate agent and prospective buyer: Good schools equal high property values equal sound investment.

As a result, there is probably no segment of the public more attuned to the importance of the state Department of Education's School Report Cards than prospective home buyers, who seek them out in making what is probably the most important investment decision of their lives.

"It's one of the key drivers of the desirability of a community and therefore of the value of real estate," said Eric R. Nahm, broker and managing partner at Somerset Hills Real Estate Group in the Basking Ridge section of Bernards. "To me, it's another dimension to finding a good location."

The annual state School Report Card was mandated by the state Legislature in 1995 to evaluate each school and school district's performance in various categories so that parents, students and education professionals would have a basis for comparison.

The report includes data on test scores, enrollment, attendance and class sizes and how many students drop out or are expelled, as well as information on professional staff. It also provides a detailed look at district median teacher salaries, experience levels, how each district is funded and how it spends that money.

Despite the reliance of buyers on the School Report Card, however, the relationship between school quality and property values is unclear.

Jeffrey Otteau, president of the Bridgewater-based Otteau Appraisal Group, a real estate industry analyst, said it may not be good schools that result in high property values, but the other way around: an affluent community is more willing to commit money to education, which results in better schools.

But whether it's the chicken or the egg which comes first, it's clear there is a strong correlation. Nahm considers the state's School Report Card to be so important to buyers -- whether or not they have children in the schools -- that he includes a link to it on his real estate Web site, he said.

Karen Ettere, the newly installed president of the Branchburg-based Hunterdon-Somerset Association of Realtors, said she has noticed that couples with children often would rather rent in a community with good schools than buy a house they can afford in a community with lower quality schools.

Or, couples with young children who can only afford to buy in a community with lower quality schools will plan to move once their children reach school age and they have accumulated enough equity in their homes to allow them to trade up to a community with schools of higher quality, she said.

Real estate agents said they like the School Report Card because it offers an objective analysis of quality. While agents can offer buyers factual information about schools, any judgmental information, such as that one school district is superior to another, for instance, could be considered a subtle form of "steering."

Steering, or channeling home seekers to or away from a particular area on the basis of race or religion -- directing black home buyers to a largely black community, for instance -- is prohibited by state and federal fair housing laws.

In cases where agents tout the quality of a school system, they can refer buyers to the report card to validate their claims and in cases where they know a school system is inferior -- but don't want to say so -- they can refer clients to the report card to see for themselves, they said. "It gets the facts out without interpretation by a human being," said Coldwell Banker agent Deborah Herridge, who works in the Somerset Hills communities of Bernards, Bernardsville and Bedminster. "That's where its value is to Realtors."

The correlation between school quality and property values, however, is a broad one, Otteau said. Differences in property values are correlated with the ranking of school districts in the top, middle or lower tiers in terms of quality, rather than the ranking of individual schools within these categories, he said.

Property values in Bernards, for instance, whose schools are considered among the finest in the nation, are higher than property values in communities with similar types of housing stock where the schools are ranked in the second tier in terms of quality, such as Bridgewater or Branchburg, Otteau noted.

He attributed the high quality of the schools in Bernards in part to the presence of the former AT&T headquarters (now Verizon headquarters), which has attracted affluent residents who are supportive of education.

Many agents reported that prospective home buyers consult the School Report Card long before they come to an agent in search of a house. Indeed, their choice of community is based on the report card, they said.

"The educated buyer has already checked it out," Kathleen Costaldo, an agent with Burgdorff ERA Realtors in the Basking Ridge section of Bernards, said.

"They'll start with the school report and back into the neighborhood rather than the other way around," agreed Joe McDonald, regional vice-president of Weichert Realtors.

In today's technology-savvy world, Nahm finds buyers to be surprisingly adept in their ability to analyze complex school data. And they aren't always looking for the most obvious yardsticks, such as average SAT test results, but rather factors such as school size, class size and teacher-student ratio, he said.

Many prospective buyers scour the report card for data on issues of particular interest to them, for instance whether a school has a music program, what languages a school offers, how comprehensive the sports program is, or the accommodations that are made for special needs students, agents said.

"Their concerns are very wide-ranging," Herridge said. "For example, some people would never consider buying a house without a garage, while for others it doesn't matter. It's very similar with school systems."

Ettere, who is also an agent at Century 21/Golden Post Realty in Middlesex, said she has found that families are attracted to Middlesex because one of its grammarschools, Hazelwood Elementary School, has an outstanding program for special needs children. "It's a lure to Middlesex," she said.

One factor that's important to many buyers is school size, Nahm said. While regional high-school districts such as Watchung Hills, Bridgewater-Raritan or North Hunterdon-Voorhees may be highly ranked, some buyers are put off by their size and may instead seek out smaller schools, he said.

Or they may use the report to evaluate the finer distinctions between systems.

For instance, while Ridge High School and Bernards High School, located in the neighboring communities of Bernards and Bernardsville, are both excellent high schools, many buyers are more familiar with Ridge and may use the School Report Card to find out more about Bernards, Nahm said.

"People come to the area because of the schools," Costaldo said. "Basking Ridge in particular."

The report card is also a help to those who come from out of the area and who may have no sense of the relative quality of school districts, Herridge said. "It gives them a comfort area," she said.