Every few years the voters of the district are asked to support a referendum or property tax increase to support SoWashCo schools. These can often add $100 per year or more to an average homeowner’s tax bill. But are school referendums financially a smart idea? And how does the school district affect property values?
We asked a licensed Minnesota Real Estate Agent to discuss property values. Home values are determined by the sum of three parts (Location, Land, and Improvements):
Location Value is determined by the desirability of an area. This is influenced by things like school quality, amenities (restaurants and shopping), and commute times to major cities.
Land Value is determined by the size and quality of the lot. Bigger lots with nicer views are obviously worth more.
Improvements Value includes everything else specific to the property. This includes the house (with any upgrades), the landscaping, etc. Larger homes, newer roofs, and nicer countertops increase improvement value.
When selling your home, an appraiser will look at recent sales of similar homes and make adjustments to determine the value of your home. Obviously, no two homes have the exact same location, land, and improvements values so this can be tricky. Appraisers choose comparable homes with the same Location Value, so they only have to make adjustments for Land Value and Improvement Value (do you have a bigger or smaller yard than the other home, is your furnace older or newer than the other home, etc.). This is fine for determining the total home value, but what if we want to determine only the Location Value? Or more specifically, the portion of Location Value attributable to the quality of schools?
Fortunately, we can find the Location Value of an area by looking at new construction (stay with me because this calculation still applies to existing homes too). If you browse any builder’s website you’ll notice they charge a base price for each floor plan in the neighborhood (sometimes labeled the “Starting At” price). This is the price to build that floor plan on the cheapest lot in the neighborhood with no interior upgrades. The differences between the “Starting At” prices of different floor plans in a neighborhood represents the differences in Improvement Value of the homes, since all homes in the neighborhood share a Location Value, and the prices shown are for the same/cheapest lot (Land Value).
But what if we look at the “Starting At” prices for the same floor plan but in different neighborhoods? If the lot sizes are comparable between the neighborhoods (same Land Value), then the only difference in price comes from the Location Value, because the homes (Improvement Value) are exactly the same:
Let’s use some real world examples. Here are the actual “Starting At” prices for three floor plans from “Builder X” in a new Woodbury neighborhood. We compare these to the “Starting At” prices for the same three floor plans from the same builder in a new Farmington neighborhood. These data were gathered from the builder’s website on October 22, 2025:
This analysis shows the Location Value of the Woodbury Neighborhood is $80,000 more than the Location Value of the Farmington neighborhood. Notice how the difference is the same regardless of floor plan (home size) because it has nothing to do with the improvements and everything to do with the area! This is an important point to note, because it means the results are the same for existing homes in the area too!
We mentioned above that Location Value is influenced by all the reasons that make an area desirable (ex: schools, amenities, and commute times). To further break down the Location Value, we need some more data. Let’s look at the “Starting At” prices for the same 3 floor plans from “Builder X” in a Cottage Grove neighborhood (data pulled on the same date):
And let’s look at the commute times, amenities, and schools of each location:
Some quick math shows that Woodbury’s Location Value is $20,000 higher than Cottage Grove’s Location Value. Because they share the same school district, this $20,000 is the marginal value of ALL other reasons that make Woodbury more desirable than Cottage Grove EXCEPT school district.
Cottage Grove’s amenities are about the same as Farmington’s, yet it still has a Location Value that’s $60,000 higher than Farmington’s? Why? It’s SoWashCo Schools!
Real Estate Agents all know one simple fact: whether you have kids in public schools or not, your home value is HEAVILY influenced by the reputation of your assigned school district. Farmington’s school district no doubt provides a quality education, but home sales show that families are willing to pay nearly $60,000 more to live in the SoWashCo school district. Fortunately, if you own a home in the school district this premium is already baked into your home’s equity – it’s part of your net worth! As long as people are willing to pay this premium to live in the school district, you get to keep that portion of your wealth! And what if you have less than $60,000 in home equity? Well – count your blessings, because if the Location Value of the area fell by $60,000 you would be underwater on your mortgage. Yikes!
This is why it is so important to maintain high quality schools and the associated reputation we have worked so hard to achieve. If school quality falls to a level comparable to that of Farmington (and let me reiterate that would still be a “good” quality), we each lose $60,000 of wealth per household.
What would you be willing to do to avoid losing $60,000?
When the next referendum comes to a ballot asking for $100 per year in additional taxes, ask yourself if paying $100 per year is worth protecting $60,000. Hint: yes it is (unless you plan to live in your home more than 600 years).
Support your schools. Protect your wealth.