Following the real estate market whether online, in print or in the media will inevitably include the usage of two popular terms related to home sales and listings – median and average. The two terms are both valuable statistics, but neither should be relied upon to the exclusion of the other.
Let’s review both and take a look at how each is calculated:
AVERAGE: The sum of a list of numbers divided by the amount of numbers in the list. Also referred to as arithmetic MEAN.
How do you calculate it? Add up all the values in the data set and divide by the number of values.
Example:
Home sold values in a given month were:
$175,000
$188,000
$202,000
$225,000
$260,000
$284,000
$310,000
$315,000
$329,000
$460,000
$840,000
There are 11 values. Add them up and divide by 11. The average is $326,182
MEDIAN: The middle value in a group of numbers.
How do you calculate it? Arrange all the values in usually ascending order and select the one that is exactly in the middle.
Example:
Home sold values in a given month were:
$175,000
$188,000
$202,000
$225,000
$260,000
$284,000
$310,000
$315,000
$329,000
$460,000
$840,000
This is a quick drill if there is an odd amount of numbers. If there is an even amount of numbers, take the middle two and divide by two. Then you have the median. Either way, half the number of sales are below the median and half are above.
Now let’s take a look at the results.
The AVERAGE of the homes sold is $326,182
The MEDIAN of the homes sold is $284,000
That’s a significant difference. The two numbers may be close… or not. Of the two types of results, in real estate, the median usually gives a more accurate picture of the status of the market since it is not affected by any large deviation in the data set.
With an average, a significant outlier, such as the $840,000 sale, will distort the results by producing a higher average that does not truly represent the market.
Another ‘average’ the consumer should be aware of is days on the market. There are average days on the market and median days on the market. Just as outliers can skew the sales average, so can a languishing listing or short sale that has racked up significant days. The median, taking the middle number in the usually ascending group of numbers, may show the more accurate days count.
So when you hear the home price average went UP 10% in the first quarter, before you get too excited, it could be that brand new luxury housing development that drove up the average with a few high closed sales. Listen for the median home price, which will usually give the more accurate result of a group of real estate market statistics and is not affected by a few high or low sales in the data set. Also, having access to the actual numbers in the data set will also give the best picture of why the average is sitting where it is. That is why I always provide the sold homes in my monthly market reports.
Check out the graph above and below. The top shows the sales price average and the bottom show sales price median for Fairfield County CT from January through April 2016. Hardly the same result. Not even close.
Market report TRENDS should be observed instead of just a singular month. That one month of statistics could be unusually high or low. Looking over at least a three-month period will yield a more accurate picture.
It’s essential as a real estate agent, home seller or home buyer to take a close look at how the data is compiled for a market statistic. Not only is it important to understand what ‘average’ and ‘median’ mean, it’s equally important to know ‘What’s the difference?” between the two.
Comments(4)