When you’re looking at housing market stats, you may see two terms: Median Price and Average Price. What is the difference and which should you pay attention to?
They may seem like interchangeable terms but they are in fact quite different. To correctly evaluate market stats or find the market value of your home, you’ll want to understand how they differ from one another.
The best way to to explain the difference is with a simple example. In the table below, I’ve listed 11 property sale prices in order from lowest to highest.
Average Sale Price
The average sale price is calculated by adding up the total of all sales and then dividing by the number of sales. In this case, the total of all sales is $6,151,000, which, when divided by 11 sales, results in an average price of $559,182.
Median Sale Price
The median sale price is the point at which 50% of the price are lower and 50% of the prices are higher. In essence it is the middle of the pack. In the case above the median price is $450,000 – #6 out of 11.
Which Is Better – Median Price or Average Price?
Both median price and average price can be useful. When you are looking at stats, especially if you are comparing two different sources, you’ll want to make sure you know which number is being used.
Median price tends to filter out anomalies such as a small number of high-end or low-end sales. It can be useful to see in what price range most homes within an area are selling. Average price can also be useful because it shows the overall trend of home prices for an area.
Which Number Should I Used to Price My Home?
It is best to look at both numbers when pricing a home or evaluating the price of a home you wish to buy. When you are comparing apples and apples as when we create a Comparative Market Analysis for our clients, the average price is often the best indicator to use. Since this number reflects the price of homes with similar features and condition it is good estimator of the target home’s market value.
However when looking at a large number of disparate properties, median price may provide a better indication of the price “temperature” of the area in question. A few low-end or high-end homes will not skew the numbers. If the target home is at the higher or lower end of the price range though, the median price may not reflect it’s true market value.
So then when comparing similar homes in a small area, average price may be the way to go but when looking at a large area, median price may provide better insights. We use both.