Defining Average Vs. Median Home Prices

One of the terms which is least understood and most overused in real estate is “average”. It gets used a lot in news media coverage of the real estate industry; I guess, simply because there is not a more definitive way to describe price or days on market.

Let's take a look at how average and median numbers are used in determining value. I'll use the following graph to look at the numbers. This graph is the statistics for an Indianapolis suburb for the month of November, 2008.

Averages

Averages are determined by grouping together properties in a specific area, adding together all the numbers (X) and dividing by another set of numbers (Y) to arrive at (A). If X = the total dollar volume and Y = the total number of homes sold, then A is the average. The problem with averages is, they are usually given for a large area. In this graph X=$19,846,941.00; Y= 67; giving A a value of $296,223. Therefore, the average price of homes sold in this city for last month was $296,223.

Enter Median

Median price or Days on Market are determined by different set of factors, using the same data. X = Highest, while Y = Lowest and A = Median. Median is the price at which there were as many homes sold which were more than the median price and as many homes sold which were less than the median price. In the above graph for the month, the median price was $255,600.

Neither adequately provide enough information to determine the value of a particular neighborhood or home. The numbers using either method are generally too diverse to establish anything other than the average price for a given area in a specific time frame.

Days on Market

By using the same graph, you can see how the statistics for days on market are also influenced by the overall averages. One home took 207 days to sell and one home took 0 days to sell, so is 71 really an average?  If I remove the high and the low, the new average becomes 67 days. Still close! The Median number is lower. Averages and Median price or days on market are best used when applied to a specific property or neighborhood, using comparable properties of equal value, square footage and similar amenities.

Square Footage

Another popular use of averages is for determining the cost per square foot. In the chart you can see for yourself the diverse difference between average and median cost per square foot. Let me just say, for the record, a single level home will sell for more per square foot than a two story home. The rest is determined by location. amenities and recent comparable sales of similar properties. Price per square foot can be used to assist in determining value, when combined with all other factors.

Sale Price vs. List Price

The sales price vs. list price averages really don't help at all in determining value. Some believe the numbers can help determine the % of asking price they can take off the price of the home. The number can assist us in finding the right price at which to sell or buy a home, when applied to an individual neighborhood, by looking at the original price vs. the sold price of similar poperties. More to come about the accuracies of using this data when determining value. To really get an idea of values for your home or neighborhood, you have to look at the numbers on a very local level.

If you read this far, Thanks!