When looking a housing market trends report in your area, you might see there are 2 type of price: median sale price and average sale price. So, what’s the difference between median vs average sale price, and which numbers should you rely on as a measure of typical home prices?
When analyzing real estate markets, two key statistics often get used – average sale price and median sale price. At first glance, they may seem interchangeable. But there are crucial differences between these metrics that impact how accurately they reflect property values.
As a buyer seller or real estate professional, understanding those differences is essential for making informed decisions. This guide examines the definitions, pros/cons, and best uses of average vs median sale prices.
Defining Average Sale Price
The average sale price represents the mean price of homes sold in a given market over a specified period. It is calculated by:
- Taking the individual sale price of each property sold
- Adding up those sale prices
- Dividing the total by the number of sales
For example
- 6 homes sell in a neighborhood over the past month
- The sale prices are $250K, $275K, $300K, $350K, $400K, and $550K
- Added together, the total value of sales is $2.125 million
- Divided by the 6 sales, the average price equals $354,167
The advantage of the average sale price is that it incorporates every data point. So it reflects the full range of values in the market.
However, the average can be skewed significantly higher or lower by a small number of outliers on either end of the spectrum. Just one or two unusually expensive or inexpensive sales can distort the true center.
Defining Median Sale Price
Unlike the average, the median sale price is not impacted by outliers in the dataset. To calculate the median:
- All individual sale prices are arranged from low to high
- The median is the midpoint figure with equal numbers of properties selling for less and more
For example:
- 8 homes recently sold with sale prices of $185K, $210K, $225K, $240K, $260K, $275K, $460K, and $510K
- With the sales ordered from lowest to highest price, the median is $260K
Since the median looks at the centermost value, extreme outliers on either end do not shift its position. This makes it a more reliable indicator of typical prices.
Comparing Average vs. Median for Assessing Property Values
When used properly, both averages and medians have valuable applications in real estate analysis. Here is how they compare:
Accuracy of Central Tendency
- The median better reflects the true middle ground of prices due to outlier resistance.
- A few anomalous sales can skew averages up or down, limiting accuracy.
Influence of Supply and Demand
- Changes in median prices over time signal shifts in overall market demand.
- Widening gaps between averages and medians indicate increasing high-end sales.
Sensibility of High/Low Ranges
- Medians may mask how affordable the low-end is or how luxury sales have grown.
- Averages convey the full spectrum from budget to luxury properties.
Representation of Dispersion
- Medians reveal nothing about value spread or standard deviation.
- Averages can be used to calculate variance and other statistical measures.
Reaction to Market Volatility
- Medians remain stable despite market swings.
- Averages tend to fluctuate more dramatically in downturns or upswings.
Best Uses of Average Sale Prices
While median prices are preferred for assessing central tendencies, average sale prices have key applications:
Measuring Market Conditions
Comparing averages over time shows how value distribution changes. Growth in luxury sales will expand the average. Lower averages reveal more affordability.
Estimating Total Value
For a portfolio of properties, averages provide a reasonable basis for gauging total worth. Median appraises each asset the same regardless of actual price.
Setting Asking Prices
For higher-end homes, averages accounting for recent luxury sales allow owners to maximize value. Median prices may undervalue top properties.
Forecasting Budgets and Profits
Averages help developers and investors model total potential sales revenue for a community or project based on planned value range.
Analyzing Investment Performance
For flippers and landlords, averages provide a performance metric incorporating profits from higher-end deals. Medians treat all deals equally.
Best Uses of Median Sale Prices
While averages serve specific purposes, medians have broader applicability:
Evaluating Typical Values
For most real estate analyses, the median sale price gives the clearest measure of standard property values without distortion.
Simplifying Comparisons
Looking at median price changes over months or across neighborhoods simplifies home shopping by focusing on the reasonable middle ground.
Filtering Outliers
Medians automatically filter extremes caused by one-of-a-kind properties, ensuring assessments stay grounded in the normal market.
Assessing Affordability
Median prices reveal what most buyers can realistically afford rather than averages skewed upward by luxury deals.
Estimating Market Direction
Rising or falling medians signal overall market appreciation or depreciation better than fluctuating averages.
Setting List Prices
For typical homes, medians aligned with general demand provide most accurate pricing. Averages inflate pricing.
Key Takeaways
While medians and averages both quantify central tendencies in real estate data, their methodological differences make each metric better suited for particular applications:
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Averages incorporate all data points equally; useful for gauging total values but easily skewed by outliers.
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Medians isolate the central value unaffected by outliers; accurately reflect typical prices and market movement.
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For evaluating normal prices, affordability, and market direction, medians give the clearest statistical measure.
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For higher-end analysis, luxury trends, and financial modeling, averages provide a more representative figure.
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Used together, medians and averages can provide fuller insight into real estate markets from typical values to price extremes.
Understanding these dynamics allows buyers, sellers, investors, and analysts to apply the right metrics for their goals. While medians may be better known, both statistical tools have an important place in real estate decision-making.
What is average sale price?
The average sale price is calculated by adding all the sale prices for homes sold in a specific area within a specified time frame and dividing that total by the number of properties sold. For example, if there were 100 houses sold during the month, the average sold price would be calculated by adding the sale prices for all the 100 homes and then dividing that number by 100.
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.
What is median sale price?
The median house price is the midway point of all the houses sold at market price over a set period (monthly, yearly, quarterly, etc.). For example, if there were 101 houses sold during the month, the median sold price would be the house price in the middle i.e., that has 50 house prices above it and 50 house prices below it.
The median sale price, then, represents the figure at which half of the properties in the area sell at a higher price and other half at a lower price. Home seller TipsMedian sale price should be used to get a feel for how the market is doing.
Average Price vs. Median Price – What’s the Difference?
What is the difference between average and median price?
The average—or “mean”—adds up all of the sales prices and divides them by the total number of sales. Unusually expensive homes can skew the average price more than the median price, so buyers may prefer to look at the median sales price while considering a neighborhood.
What is a median sale price?
The median sale price, on the other hand, is the sale price in the middle of the data set when you arrange all the sale prices from low to high. The median sale price, then, represents the figure at which half of the properties in the area sell at a higher price and other half at a lower price.
What is the difference between average sales price and median sales price?
Although both average sales price and median sales price give data about pricing in a certain area, there are several differences between these methods of calculation. These differences include: The average sales price uses addition and multiplication to determine the sum.
What is the average sales price?
The average sales price is a figure that finds the baseline price of all homes sold over a specific period in a specific area. To calculate an average sales price, combine all provided figures and divide the sum by the number of figures.
