Average, Mean & Median - 3 Essential Terms used in Real Estate Market Reports
Real estate information provided by Brian Wiseman LL.B., CIPS of Keller Williams Energy Real Estate Brokerage
These 3 essential terms are used in Real Estate Market Reports to show house prices in certain geographical areas, over a specific period of time.
Whether it was a Buyers’ Market, Sellers’ Market or Balanced Market, in that geographical area, and during that time period is determined by various calculations involving these 3 essential terms.
Those 3 terms often cause confusion.
The 3 terms are:
· Average Price
· Mean Price
· Median Price
Average Price:
Average Price is calculated by adding together the sold price for each of the particular number of properties sold and, then, dividing the total of the sold prices by the number of properties sold.
Mean Price:
If someone says, “It’s a mean price”, you could be excused for thinking they are referring to the price paid on a specific property.
Not necessarily so!
In market reports covering trends in the housing market, the expression is more likely to relate to statistical information.
In statistical terms, the mean price is the arithmetic average of a specific number of sold prices.
In other words, it has exactly the same meaning as the average price.
Median Price:
Don’t be confused by this term.
It has nothing to do with mean price!
The median price is the price found at the exact middle of the list of sold prices.
The median price can be ascertained by listing all sold prices in ascending (or descending) order and then locating the sold price in the centre of that list.
If there are an even number of sales, then there is no single middle sold price; the median price is then usually determined by calculating the mean (or average) of the two sold prices in the middle of the ascending, or descending, list.
Some Examples:
Average, or Mean, Sold Price is:
Total of Sold Prices divided by the number of sales
$4,345,000/11 = $395,000
Median Sold Price is the sold price which is in the middle of the list.
In this case it is the 6th sale (5 are above it and 5 are below it)
i.e. $395,000
In this example the average, or mean, sold price is the same as the median price.
However, in the case of real estate sales, it is not often that average,or mean, sold price is the same as the median price.
What happens if there are some high priced sales during the period?
Example:
Average, or Mean, Sold Price is:
Total of Sold Prices divided by the number of sales
$5,044,600/11 = $458,600
Median Sold Price is the sold price which is in the middle of the list.
In this case it is the 6th sale (5 are above it and 5 are below it)
i.e. $395,000
So, the higher priced sales #10 and #11 have significantly raised the average, or mean, sold price above the median price.
What happens if there are some low priced sales during the period?
Example:
Average, or Mean, Sold Price is:
Total of Sold Prices divided by the number of sales
$4,099,700/11 = $372,700
Median Sold Price is the sold price which is in the middle of the list.
In this case it is the 6th sale (5 are above it and 5 are below it)
i.e. $395,000
So the lower priced sales #1 and #2 have significantly lowered the average, or mean, sold price below the median price.
Conclusion:
While the average, or mean, sold price and median sold price can be the same or nearly the same, they can be very different if some of the sold prices are much higher, or much lower, than the others. In the jargon of statisticians, this is called skewness.
In such cases, the average, or mean, sold price can be significantly skewed away from the median sold price.
When this happens, the median sold price gives a better representation of central tendency than the average, or mean, sold price.
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About the Author:
Brian Wiseman LL.B., CIPS, is a Sales Representative with Keller Williams Energy Real Estate Brokerage in Oshawa & Whitby, Ontario, Canada.
In his past lives, Brian was a Partner in Legal Practices, specializing in Real Estate and Business Law in Australia and a Principal of a successful Financial Planning Practice in Australia.
After the sale of his business interests in Australia, Brian started a new adventure by relocating to Canada with his Canadian wife.
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