Mark Twain is credited with popularizing the phrase, “Lies, damned lies, and statistics”. Obviously, he was aware how data can be manipulated, misleading and needs to be understood in the proper context. In real estate, we deal with statistics on a daily basis. In an effort to understand trends, we encounter the terms “average sales price” and “median sales price”. Both of them use the same set of data. Its just how you look at the data so it is useful to understand the difference between the two terms.
Median vs. Average Price in Real Estate
The calculations for average and median prices are fairly straight forward.
The median of a set of numbers is that number where half the numbers are lower and half the numbers are higher. When we’re considering real estate, that means that the median is the price where half the homes are less expensive, and half are more expensive.
The average of a set of numbers is the total of those numbers divided by the number of items in that set. For example:
For the data to the left let’s determine the median and average for these 11 houses. The value or median where there are an equal number above and below is $210,000.
To calculate the average we add the prices of the 11 homes which gives a total of $3,385,000. Now divide this by 11 and the average house price is $307,727.
As you can see, the difference between the median and average is almost $100,000! The distribution of the data is the key. The median will keep the outliers on the extremes from overly influencing the calculation.
So when you’re listening to someone talk about the median vs. the average price per square foot, it’s important to understand the different and how the distribution of the data can affect the outcome.
If you’re looking for that special home but need help finding it, go to send me listings and describe what you’re looking for and I’ll be glad to help.
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