With home prices and mortgage rates as low as they are, more parents are asking, "Is it worth buying a more expensive property in order to get my kids into a better school?"
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If you ask Deanne Anderson what a top school is worth, she's got a specific answer: 25 percent of your home's value.
The Los Angeles area Realtor can be that specific because she sells homes in the small suburb of La Cañada Flintridge--a city of about 20,000 residents with two school districts. Kids living on the east side of the city attend La Cañada schools, which are consistently ranked among the top in the state. But a small western segment of town is locked out of La Cañada schools. Kids in the so-called "Sagebrush" area must attend school in La Crescenta, which also hosts great schools--just not quite as great or quite as consistent.
This seemingly subtle difference in school districts has a dramatic impact on home prices, says Anderson, who works for Coldwell Banker in La Cañada. Homes in the Sagebrush area sell for about $100 less a square foot than those in the La Cañada school district.
"There are plenty of buyers that only want the La Cañada school district and they're willing to pay more to get it," Anderson says. "We've had homes fall out of escrow when they realized that they were buying in La Cañada but not getting La Cañada schools."
Research bears out: "Schools are an asset"
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La Cañada is just a microcosm of a national phenomenon, says David Figlio, professor of social policy and economics at Northwestern University in Evanston, Ill. Residential real estate prices react anytime you get a clear measure of school performance.
According to his research, housing prices in the A-rated districts immediately jumped 10 percent over those in areas where the schools were good, but not great--in other words, where the schools received B or even B+ grades. When schools proved consistently better over time, the price difference got wider.
In fact, Figlio's research confirms Anderson's evaluation almost to the percentage point. He says a consistently top district commands a 23 percent premium in housing prices over homes in even B+ school districts. While housing prices may rise and fall, this cost differential remains, and Realtors say houses in top school districts sell faster, too. But watch out if there's any chance that the schools will deteriorate or re-zone, says Figlio.
"Schools are an asset," he says. "Even people who don't have kids are willing to pay more for houses in a good school district because they know that when they sell, they are going to be able to sell for more."
Private school expenses and your financial breakeven point
There's a completely practical component to the price differential for parents, says Mark Wilson, a Certified Financial Planner with The Tarbox Group in Newport Beach. Simply put, when you ask yourself, "How much house can I afford?", the math hinges on whether the public schools are good enough to trust and whether you'd send your child to a private school if they weren't.
Roughly 6 million kids--about 11 percent of all U.S. students--attend private grammar and high schools, according to the Council for American Private Education. The average annual cost of a private grammar school is $6,733 per year; the average cost of a private high school is $10,045 per year.
But those averages only apply if you are willing to send your child to parochial schools, which charge far less than schools that have no religious affiliation. Non-sectarian private schools, which enroll the second-most private school kids after Catholic schools, charge an average of $15,945 per year for grammar school and a whopping $27,302 per year in high school.
How much more is a good public school district worth?
To a financial whiz like Wilson, all this translates to a mathematical equation. At today's mortgage rates, you'd be better off spending an extra $75,000 per child on a house with access to good public schools than on even a relatively inexpensive private parochial school.
If you'd send your kids to the pricier non-sectarian schools, boost that figure by $100,000, he says. In reality, private schools would cost you more than $225,000. But Wilson figured you'd pay more for property taxes and insurance with the more expensive home too, so he factored that in for his apples-to-apples comparison.
Naturally, current mortgage rates can change the math a bit. If you want to play with your own numbers to consider whether you're better off paying more for a home in a better school district or paying for private schools, use a mortgage calculator to figure the monthly cost of a bigger mortgage and compare that to the monthly cost of the private schools you're considering.
"Buying a house in a better school district could save you a small fortune if it allows you to avoid sending your kids to expensive private schools," says Wilson.
This article was originally published on HSH.com.