Wisconsin has a new school accountability system that includes school report cards. These report cards are intended to tell the public how schools are doing and provide incentive and guidance to the schools to help them improve. This school grading system may grab headlines and have unintended consequences for Wisconsin property values, but the duty of REALTORS® to disclose material adverse facts and abide by the Code of Ethics remains the same.
Wisconsin’s new school report cards
In the new accountability system, schools will receive a report card each year. The report card indicates the school’s “Overall Accountability Score” on a range of 0 to 100, as well as the associated “Accountability Rating.” There are five Accountability Rating categories; a school’s rating will determine what level of support the school will receive. This accountability system no doubt will evolve in future years.
School report cards are now available to the public on the Department of Public Instruction (DPI) website, organized by district. The DPI website cautions that the accountability scores are not the same as grades, but it is difficult to imagine how they will not be viewed by the public as A-F or 1-5 grades or rankings.
The DPI website explains that the accountability index score that a school receives is based on the school’s performance in: (1) student achievement in state reading and mathematics tests; (2) student growth measured by year-to-year improvement in achievement; (3) closing gaps in performance between specific student groups, such as comparing English language learners, low-income students, students with disabilities, and members of racial or ethnic group with their peers; and (4) on-track/postsecondary readiness, including graduation or attendance rates, reading and math achievement, and ACT participation and performance. In addition, the school report card displays statistics regarding the school’s (a) test participation rate in the state reading and mathematics tests, (b) chronic absenteeism rate and (c) dropout rate. The school report card also details the performance of various student groups based on race and ethnicity, disability, poverty, and limited English proficiency.
But the bottom line, when it comes to the accountability index scores, is student performance on the standardized tests. Each year, Wisconsin public school students in grades 3-8 and 10 have taken the Wisconsin Knowledge and Concepts Examinations (WKCE) for mathematics and reading. Starting in the 2012-13 school year, Wisconsin will raise the testing and achievement standards based on the National Assessment of Educational Progress (NAEP). Student performance on these standardized tests is the basis for the accountability index scores.
Will school report cards impact property values?
Every REALTOR® intuitively understands that there is a relationship between school quality and real estate; the perceived quality of the schools can influence the value of a property and the time on the market. School quality is a critical factor for parents with school-age children who are willing to pay higher prices or accept a smaller or lesser quality home to get their children in the “right” districts. In addition, empty nesters or others without children who contemplate selling in the foreseeable future may put even more stock in school quality indicators because they anticipate selling to parents.
A review of the archives of the National Association of REALTORS® reveals that the relationship between school quality, as perceived by the public, and real estate values is a quantifiable fact. Studies conducted in other states and communities show that homes in lower-ranking school districts may be worth less than comparable homes in higher-ranking districts. It is too soon to predict the extent to which this correlation will be found in various Wisconsin markets, but it would appear naive to not expect some impact.
Fair housing considerations
Would it be a good idea to hand out copies of these new school report cards or the page with the scores and the accountability ratings to buyers?
The school report card gives the percentages of different groups within the school district by race and ethnicity, disabilities, limited English proficiency and economic disadvantage, and provides separate performance results for these different groups.
Article 10 of the Code of Ethics indicates that “REALTORS® shall not be parties to any plan or agreement to discriminate against a person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin or sexual orientation. (Amended 1/11)” Standard of Practice 10-1 provides that, “When involved in the sale or lease of a residence, REALTORS® shall not volunteer information regarding the racial, religious or ethnic composition of any neighborhood nor shall they engage in any activity which may result in panic selling, however, REALTORS® may provide other demographic information. (Adopted 1/94, Amended 1/06)”
In a similar vein, § 804(c) of the Fair Housing Act provides that, “It shall be unlawful to make, print, or publish or cause to be made, printed, or published, any notice, statement, or advertisement with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familial status, or national origin, or an intention to make any such preference, limitation, or discrimination.”
To avoid violation of the Code of Ethics and the Fair Housing Act, REALTORS® should not distribute materials relating to the ethnic or racial composition of a neighborhood or assist sellers to distribute information that could imply a preference, limitation or discrimination based on a protected class. If questioned about such data, REALTORS® should refer buyers directly to the U.S. Census or other sources of demographic data.
What should an agent do if the buyer asks about high-quality schools in the neighborhood?
The agent should provide the buyer with resources from the DPI, local school board or district, and any other relevant school information, for instance regarding private schools. The agent can also encourage the buyer to visit local schools and locate district boundaries. It would be foolish for the agent to make any complimentary or critical comments about any schools. Racial steering cases often involve comments regarding schools, which may be used as “code.” For example, a comment that the schools are not at the highest level may really mean that the schools have many students belonging to protected classes. See the April 2012 Legal Update, “Fair Housing Conundrums: What Should I Say When They Ask About …?” at www.wra.org/LU1204.
Disclosure duties remain the same
The information regarding Wisconsin schools is rapidly changing, and there is uncertainty over the effect of accountability scores on property values, but the disclosure standards and protocol for real estate licensees remain the same.
Is there a duty to investigate and obtain current school report cards?
No, Wisconsin licensees do not have any licensee law obligations to investigate property conditions or community information such as the school report cards. A licensee can, however, point the seller to sources of factual information that may help resolve any party concerns.
Is an accountability score within the “Fails to Meet Expectations” rating category a mandatory disclosure?
If this low accountability score is not disclosed elsewhere, a licensee may be obliged to disclose if it constitutes a material adverse fact. This is a judgment made by the agent, in fulfillment of the licensee’s duty under Wis. Stat. § 452.133(1)(c), after considering all the facts and circumstances and the definitions of “adverse fact” and “material adverse fact” found in § 452.01 and Wis. Admin. Code § REEB 24.02. A low accountability score would not seem to reduce structural integrity, present a health risk or suggest that a party does not intend to perform under a contract, leaving the key question of whether the low accountability score “has a significant adverse effect on the value of the property.”
If the licensee is uncertain whether the low accountability score significantly and adversely affects the property’s value, the licensee will be practicing competently if he or she provides the parties with a timely written disclosure indicating that the low accountability score is information suggesting the possibility of a material adverse fact under Wis. Admin. Code § REEB 24.07(3). The licensee may then recommend that the parties obtain expert assistance and, if directed by the parties, draft appropriate contingencies. Although the sellers may request that this information remain confidential, the legal obligation to disclose trumps any such client directive.
Should buyer’s brokers provide these scores to buyers?
The school report cards and accountability scores may create a buzz around the state, but the disclosure rules have not changed. There is no formal requirement that they do so. Practically speaking, having the current school accountability scores may become the norm for buyer’s agents hoping to impress buyer clients.
Online resources
School report cards: The “go to” resource for the new Wisconsin school report cards is the DPI Accountability Reform page, where you can find a sample School Report Card, Report Cards Frequently Asked Questions, a Parent Guide and much more. Visit http://dpi.wi.gov/oea/acct/accountability.html
Schools and Property Values: Schools and Property ValuesNAR Field Guide to Schools and the Home Buying Decision: www.realtor.org/field-guides/field-guide-to-schools-and-the-home-buying-decision
Metropolitan Policy Program at Brookings, “Housing Costs, Zoning, and Access to High-Scoring Schools” at www.brookings.edu/~/media/Files/rc/papers/2012/0419_school_inequality_rothwell/0419_school_inequality_rothwell.pdf
Disclosure Resources: A sample material adverse fact disclosure letter is available on page 26 of the October 2009 Legal Update, “Diligent Disclosure,” at www.wra.org/LU0910 or on zipForm®. Pages 10-16 of that Legal Update provide a check-down list of the factors determining a licensee’s material adverse fact disclosure obligations.
Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.