For What It’s Worth: Research Project Looks at Features That Impact a Home’s Value

While newly constructed homes in San Luis Obispo County are typically worth $97,000 more than existing ones, some buyers might favor older neighborhoods over more densely built new subdivisions, Hamed Ghoddusi recently told a group of local real estate experts.

“Older homes are on bigger lots,” said Ghoddusi, an associate professor of finance at the Orfalea College of Business. “’Old’ might be a proxy for having a big backyard.”

Hamed Ghoddusi shares some of his team’s research findings with a group of real estate experts in San Luis Obispo. (Photo/Pat Pemberton)

During this year’s Summer Undergraduate Research Program (SURP), Ghoddusi and two students, Matina Lampsas, who is concentrating on quantitative analysis, and economics major Manning Kalish, researched how a home’s characteristics affect pricing, with the goal of sharing results with real estate professionals and government officials.

“It can help in multiple ways,” Ghoddusi said. “First, we gained a deeper understanding of the price distribution for different types of homes  — for example, single-family or condos — in various parts of the county. Second, the estimation results inform us how much the market values each feature, such as parking space, floor area, distance to amenities, etc.”

The annual SURP program pairs faculty mentors with students to conduct current, relevant research. This summer, business students partook in a range of SURP projects, exploring topics that covered marketing, economics, accounting and more.

Ghoddusi’s research, which will continue beyond SURP, focused on building a model to estimate home values.

While high demand, low supply and a desirable location have caused the median cost of a home to surpass $820,000 in the county, the SURP project looked at the specific characteristics of a home that impact pricing. Those factors might include proximity to schools, weather, the quality of the neighborhood, whether the home has a swimming pool and more.

“We found that the floor area of the home is the most important feature, followed by the lot size,” Ghoddusi said. “The location – i.e., the city within the county – is also a key feature. To my surprise, after controlling for the size, the number of bedrooms was not a major factor.”

The research could be expanded, he said, to look at novel features, such as tree coverage, vegetation and light quality. The research could also help develop a model to estimate fair market rent for a new unit.

While the research could be applied to other locations in the state and beyond, Lampsas said, the work they performed over the summer looked specifically at San Luis Obispo County, making it important to understand the county’s unique local attributes.

Manning Kalish, left, and Matina Lampsas helped present research findings to a room of real estate experts. (Photo/Pat Pemberton)

“During this project, we discovered certain factors that had an influence on housing prices that without understanding the San Luis Obispo area wouldn’t have made sense,” she said. “The role that context plays in making sense of data is a takeaway I will continue to apply toward any project I work on.”

Throughout the research, the group sought input from local real estate professionals.

“We provided honest feedback to the students and made suggestions on how the data they pulled from public records could be used to make the data more useful and accurate in the future,” said Lindsey Harn, of the Lindsey Harn Group.

The SURP team shared some of their results at Harn’s office in San Luis Obispo, where other local real estate professionals were in attendance.

“We were incredibly impressed with the presentation made,” Harn said. “The amount of detail and thought put into the project was truly impressive.”

The charm and variety that makes the county desirable, Harn said, also makes it challenging to determine the value of homes.

“Our very unique characteristics of homes and neighborhoods make it more difficult to predict versus communities where there is a much higher percentage of tract housing,” she said.

Choosing the “right” home has long been an integral part of homebuying. But, as the trajectory of housing prices continues to trend upward, younger and lower-income buyers might be less focused on a pool or a backyard, Ghoddusi said, and more on affordability.

“That is one of the unfortunate features of our county,” he said. “Due to limitations in the housing type variety, buyers may need to travel a long way to find options that they can afford. Further exploring this fact is one of our future plans.”

Local real estate agent and Cal Poly alumnus Lindsey Harn, left, offered input for a research project that aimed to create a model for home valuation. (Photo/Pat Pemberton)