Should you use Average or Median Price when analyzing sales?
You often hear the terms Average Sale Price and Median Sale Price when stats are discussed. When it comes to real estate, what’s the difference between the two and how do you know when to use average price vs. median price to determine value?
The Average Sale Price is calculated by adding all the sale prices for homes sold and dividing that total by the number of properties sold. The Median Sale Price, on the other hand, is the 50% point in the data, regardless of the rest of the data. For example, if you have the following data:
$500,000, $500,000, $500,000, $500,000, $500,000, $500,000, $1,000,000, $1,000,000, $2,000,000
The Median Sale Price is $500,000 since that is the middle number in the data set, while the average is $777,778.
The problem with the average sale price is that if one or more properties were sold at an extraordinarily high or low price, the average is skewed higher or lower as a result. In this case, the average becomes a somewhat unreliable metric.
Average is best to use when your price range falls in the upper segment of a bell curve (ie. within a mainstream price point for the area). But if your data is at one extreme or another with fewer sales for analysis, the median will often be a more helpful value in evaluating overall trends such as year-over-year appreciation.
Is the Median Sale Price or Average Sale Price a Better Reference Point?
Both the average sale price and median sale price can be valuable when analyzing the market. It’s important to remember either value may be skewed due to outliers in the data such as a price far higher or lower than typical for the area or if there are very few overall sales.
When you’re pricing a home it’s a good idea to use both the average sale price and median sale price to help you determine the see the full picture.
When an outlier is present, you can decide to use the median sale price as your benchmark.
Still have questions? Contact one of our knowledgeable brokers for assistance with how to determine your best sale price based on both the average and median price trends.
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© Copyright 2019. Information and statistics derived from Northwest Multiple Listing Service.