Home > Buying a home, Fast Facts, Selling a home > FAST FACTS #5: Real Estate Terminology – Average Price Vs. Median Price

FAST FACTS #5: Real Estate Terminology – Average Price Vs. Median Price

When reading data or reports about Real Estate trends or when comparing prices in different markets you will, more often than not, see the term MEDIAN PRICE.

At first glance, if you haven’t been exposed to this term, you might assume this is the same as AVERAGE PRICE.  It is not.

A mathematical median, is the middle point in a set of data.   A mathematical average is a calculation derived by adding up a set of numbers then dividing by the number of entries.

So if there are 200 homes sold during a time period, the median price would be to find the house “in the middle”. There are an equal number of homes priced higher and lower than that house.    That price is the median.

Many mathematicians argue that using a median price will give you a much more accurate way of looking at the “typical” selling price of a group of homes. An average price will likely be skewed by a very high number or a very large number that is in the mix.  Using median, you reduce that risk.

Here’s an example:

Using the following 11 sold homes in ANYTOWN, the average selling price would be $214,000.  The median price would be $219,000.  Not that far off.

LIST #1

$255,000
$252,000
$250,000
$235,000
$220,000
$219,000
$199,000
$185,000
$182,000
$179,000
$178,000

Average = $214;  Median = $219

—————————————-

This was an easy one – all the house were sold in the price range of $178 – $255.   Allowing for certain market variables, these homes had many similarities.

Suppose that, that two of the homes were NOT similar – they were, instead very high-end luxury homes built a short distance away but had much more to offer: Bigger, more property, extra bathroom, etc.   So take the same list but change the price of the top two homes to $619 and $579.

NOW, your average price jumps up to 276 from $214.   The median remains the same, since it based on finding the house that has an equal number of higher and lower priced houses.

Using the second list, which would give a clearer “feel” of the values of recent homes sold in your town?

List #2

$619,000
$579,000
$250,000
$235,000
$220,000
$219,000
$199,000
$185,000
$182,000
$179,000
$178,000

Average = $276,  Median = $219

Which would give a clearer “feel” of the values of recent homes sold in your town?

——————————

Rick Schwartz,   REALTOR

Homes for sale in Danbury, Bethel, Brookfield, Newtown, New Fairfield, New Milford, Ridgefield and Redding CT.

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