The "Median Price" is a big, fat ZERO for usefulness! It drives me nuts when I see article after article, online and print, stating "the median price in the Inland Empire went up", or "the median price in the Inland Empire went down.." Who cares??? What does that statement MEAN?
I like this common sense article from First Tuesday...
The median price report gives an acutely misleading picture of price changes for any one property or tier of property values. Median price is a statistical point which fails to work in the analysis of any one price-tier of properties, much less an individual property. To determine how real estate will actually behave in the future, you cannot compare the price of a low-tier property with that of a high-tier property; it's just common sense.
The best way to initially evaluate a property and set its price is to study comparable property values in the same demographic location (same house, same tract). Other ways to set the ceiling price, beyond which one should not go to pay for a property, include cost per square foot (replacement cost) and income analysis methods. The attractively simplistic application of a "mathematical abstraction," as in a median price or a comparison of median prices over time, will never produce a useful result when applied to an asset as unique and variable as a parcel of real estate. [For additional insight on how a generally derived median price is an inferior pricing tool, please consider first tuesday's recent case decision article on REO resales as disqualified appraisal "comps"]
The overall median price also gives an erroneous representation of the market. The rate and extent of changes in property value prices varies dramatically both within and between low-tier, mid-range, and high-end properties. While values for low-tier properties generally change quickly and dramatically, as depicted in the above charts, high-end properties are slower to react to the rise and fall of the general market. Different tiers sometimes even move in opposite directions, and when upward or downward price movement occurs each tier experiences a different percentage of price change.
A median price is nothing more than a line bisecting the total of all sales prices;
one half above, and one half below. It never represents the price movement of any one property. The formula of median home price must be dumped in the trash bin of bad ideas for setting values-just ask any real estate appraiser or economist or agent who has had to explain why the listing price should be dropped when the seller has just read in the local newspaper that the median price has risen.
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