Average Sales Price vs Median Sales Price
Two of the most referenced tools for attempting to measure real estate value in a geographic area are the average sale price, and the median sales price. As such, it’s important to understand how, and why, the two numbers are used. The average sales price represents the mean of total sales prices. The median sales price represents the numeric middle of sales prices. The two terms sound as though they would be similar in effect and application, but it’s not the case.
Average sales price is used to show the middle-ground, so to speak, of home sales prices. Let’s consider an example of 15 houses sold in a geographic area. The sum of the prices of these 15 houses sold is $12,334,000. To calculate the average sales price for this area we would divide the sum ($12,344,000) by the number of houses sold (15). The resulting figure, $822,266.67, represents the average price of purchasing a home in this area, as demonstrated below.
Median sales price is used to show the central point of home sales prices. Half of the prices are above, half are below. Let’s again consider the example of 15 houses sold in a geographic area. If we were to list all 15 sales prices in descending order, the median sales price would be the figure displayed in the 8th position, $779,000, 7 below the highest price, and 7 above the lowest price. It is the median of the data set of 15 home sales prices, as demonstrated below.
Home Sales Price
It’s important to understand the context of the calculations so you understand which figure to discuss with your clients. In situations where there is an outlier being factored in, you will want to use the median price. An example of an outlier would be if you had an area of $400-$500k home sales prices, and one that is $1.3 million. That $1.3 million is an outlier and will dramatically increase the average sales price as it is factored into the sum. In the end, it’s important to be able to give your clients the most accurate understanding possible.