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”Will my property value be affected by the referendum?”


By: Brett Martin, Certified Indiana Residential Appraiser

Document available at:  http://www.Appraisers.IN/Franklin-Township-School-Referendum
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Appraiser’s Opinion: The most probable answer is yes…in one way or another.  If the referendum in any way changes the perception of the quality of the schools, as compared to currently, as well as compared to other school corporations that do pass referendums, home prices will react.


From the National Association of Realtors

“Field Guide to Schools and The Home Buying Decision"…

“Of all the local neighborhood amenities that can influence a buyer's decision to purchase a home, proximity to good quality schools is one of the most influential.”



Risk #1) Franklin Township homes are currently marketed by agents for having high quality schools. (Meaning that current sales statistics and median prices include sales transactions marketed for high quality schools/amenities)  


A losing referendum; i.e. increased class sizes, no bus service, and no specialized teachers will most certainly be perceived by “potential home buyers” as a community in decline due to reduced school amenities- even if the current educational quality is able to be maintained. (Potential home buyers not only compare competing homes within Franklin Township, but also homes offered in competing Townships and Counties surrounding Marion)  


Generally speaking, home buyers typically report choosing their home locations based upon the set of amenities available in the community; i.e. schools, employment opportunities, proximity to shopping and hospitals, etc. 


Essentially, the more amenities offered by a community, the more people want to move there.  The fewer amenities offered, the more out-migration is witnessed by those with the means, and the less people from outside the community want to move there. 


Risk 2) If the referendum does not pass May 3, 2011, Out-Migration is certain to occur with those with the means to send their children to private schools. 


Every single child lost to private schools or that moves to a competing community that passes their referendum will exacerbate the Township’s revenue shortfall forcing the schools to continue cutting additional services not yet identified.


Risk 3) Public Services quality/quantity declines due to the Continuation of declining home prices due to macroeconomic conditions will be exacerbated in states with “capped” property taxes.  House prices peaked in 2006 and have fallen sharply until stabilizing in 2010. 


However, when accounting for higher underwriting standards than in the prior decade, the significantly reduced credit facilities available for mortgage finance, the amount of bank owned inventory yet to be cleared, the number of “stuck” homeowners that owe more than their home can sell for, rising mortgage interest rates, and the closing of Fannie Mae/Freddie Mac, median prices are almost certain to continue their decline.


Property Tax Cap Effect on Public Schools: Because the State of Indiana’s maximum amount of potential property tax revenue available to the state, is now tied to property values (I forecast to decline), future state property tax revenue will also decline.


If I am correct about further home and commercial property price declines attributed to macroeconomic mortgage conditions, money amounts currently allocated to school corporations will continue to decline unless education is given a higher allocation/priority in the State budget by Indiana legislators than presently. 


Each Township is now responsible for their home price performance.



According to the 2008 National Association of REALTORS® Profile of Home Buyers and Sellers, 27% of home buyers listed school quality and 21% listed proximity to schools as deciding factors in their home purchase.  This Field Guide includes articles and studies on the importance of schools for home buyers and how schools impact local property values.


Appraiser’s Opinion: Franklin Township is one of the two lowest density Townships in Marion County.  Lack of bus service therefore would most likely be a VERY negative factor to “potential home buyers”- meaning it could be harder for existing Franklin Township homeowners to sell their homes if the referendum does not pass.


Where can I read more about how schools affect my property value?

From the National Association of Realtors website: http://www.realtor.org/library/library/fg307#impacts
From the Federal Reserve Bank of Philadelphia: http://www.phil.frb.org/files/br/brso98tc.pdf



Non-Realtor Study: Conclusion from the Federal Reserve Bank of Philadelphia:


This survey of housing prices and school quality has identified at least two possible sources for the school premium: the resources available to the school and the composition of the student body.  Even though the overall relationship between school resources and student achievement is a matter of controversy, most researchers agree that when extra resources are used wisely, they can enhance the quality of education and thereby contribute to higher house prices. These extra resources might be used to improve academic achievement, but they might also be used to improve other dimensions of school quality, such as the physical attractiveness of the school or the range of extracurricular activities. 
The empirical evidence also shows that academic achievement can be improved by the peer group effect. This effect represents a classic spillover, whereby students reap benefits from the personal and family characteristics of their classmates.  Therefore, prospective home buyers are applying an appropriate yardstick when they focus on average test scores to help decide what the school premium should be.  The peer group effect justifies higher house prices in areas where schools have higher test scores.  It is not easy to disentangle the school premium from the value of many other neighborhood characteristics.  But the premium clearly exists, and it is an important factor in the difference in house prices across neighborhoods.

”Do Mortgage Lenders care about neighborhood amenities?”


Appraiser’s Opinion: Yes- Mortgage lenders care greatly about neighborhoods because they affect a property’s liquidity and potential sale price.


Below: Supplemental Addendum to Mortgage Lenders we include on all of our current Franklin/Perry Township and Center Grove-Greenwood appraisals:

Estimated Macro/micro economic implications of Proposed School Corporation Referendum:

Based upon non-political studies completed of prior similar measures in other states, School tax and spending limitations imposed by the State upon Franklin Township are estimated to reduce public school enrollments by causing a shift of students away from the public schools into private schools, and the movement of families away from tax-limited (failed referendums) districts and into non-limited (passed referendums) districts. 

Additionally, this downward spiral is magnified by the fact that the district receives funding on a “per child” basis.  With each lost child to competing communities that pass referendums, the school corporation faces even more cuts in school “quality”. 

For example, Hamilton Southeastern and Carmel both passed referendums needed to fund the gap left by the “Indiana property tax caps”; therefore these competing communities will be able to retain the service levels and quality (and perception of quality) of schools, as per test results, currently reported in Franklin Township.  Districts like these are estimated to grow while districts unable to pass referendums are estimated to shrink as they are not as attractive to the estimated majority of potential real estate market participants.

The effect of a losing school referendum on property values is estimated negative for Franklin Township; positive for those competing school corporations that pass theirs due to in-out migration.  Amenity quality affects home values and schools are the number one estimated amenity for most migratory families under age 60. Not surprisingly, school perceptions are typically a major factor in median home values. 

Quality/Declining property value spiral:  Because declining-enrollment districts attributed to those unable to pass referendums, are districts in which property values are also estimated to decline, these districts are estimated to be the ones in which residents are consistently the least likely to vote to override Indiana school funding revenue limits with referendums even though these districts need to spend more per student just to maintain the same historic service levels due to continuing/increasing fixed costs.

Research has shown that educational quality often suffers when tax limits (property tax caps) are imposed, even when referendums are approved.  Voters typically report thinking that by voting against an override (referendum) they are voting to cut waste, fraud, and abuse while leaving quality unaffected, but in reality the spending cuts they are voting for are essential to educational quality.  When there is wasteful spending in public school corporations, tax limits and referendums are estimated insufficient instruments to correct the behavior as compared to administrative changes.

Because school tax referendums typically offer voters the only opportunity to vote directly on their taxes, many voters typically vote against referendums because they simply want lower overall taxes.  Those same voters typically report not wanting any public services including education to be cut, but still want to reduce taxes. 

In the opinion of the appraiser, voting against school referendums geared at supporting desirable quality education, often the keystone of the community, is voting to destabilize own property values.

If the proposed school corporation referendum in Franklin Township does not pass, it will cause the majority of family sized properties in the Township to become much less attractive than in very proximate alternative communities such as Hamilton Southeastern and Carmel which passed school referendums to make up the short fall attributed to Indiana’s short sighted property tax caps.

It is my opinion that a failing referendum means median home prices in the Township will decline a significant amount from present values, continue to decline over time, and stagnate as market participants leave for competing communities that passed their referendums which serve to make their communities more desirable.  

Franklin Township School Referendum


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