Median ​v​s Average ​Price

We recently released the 2015 3rd Quarter Charlottesville Market Report and sometimes it helps to define how numbers are determined.

Many Buyer clients ask us: “What’s the difference between median and average values?”

And many of our Sellers want to know: “How does this affect my listing pricing strategy?”

Let’s start with defining the term “average”, also known as the “mean.” This statistic is fairly easy to understand, as well as to calculate.

Compose a list of some active listings along with their asking, or list, price. A spreadsheet is very useful for this purpose. Next, calculate the sum by adding up all asking prices. Finally, we divide that sum value by the total number of listings. This then gives us the average asking price for listings in our market.

chart

The median is also quite easy to understand and calculate.

Let’s take another look at that same list. We need to arrange it in order from lowest price to highest. Once that is done, simply find the value that’s in the exact middle of the list. That value is our median asking price.

When the list has an even number of properties, it will not have a single middle value, but rather we find two values that occupy the middle space. In this case, we simply take the average (add both numbers and divide by 2) to get the median value for the entire list.

Median values show a more accurate view of the market since they are typically less affected by large deviations in the data. For example, let’s assume that your data set includes five properties, as shown below along with their respective asking prices.

The first thing you might notice is that one of these things is not like the others. Property #4 is priced much higher than the rest. This will have a significant effect on the average value, which happens to be $513,000.

Property #1 … $350,000 

Property #2 … $370,000 

Property #3 … $310,000 

Property #4 … $1,200,000 

Property #5 … $335,000

————————————

Total: $2,565,000 / 5 = $513,000

If we arrange the properties from lowest to highest price we see the median is: $350,000

Property #3 … $310,000

Property #5 … $335,000

Property #1 … $350,000

Property #2 … $370,000

Property #4 … $1,200,000

In another example, in order to determine the median, we first sort the list in ascending order, then pick the middle value, which is $275,000. Comparing it to the average, the median value is a much more realistic interpretation of this market.

Home 1 – $ 1 50,000

Home 2 – $ 220,000

Home 3 – $ 245 ,000

Home 4 – $ 275,000 (Median)

Home 5 – $350,000

Home 6 – $ 9 50,000

Home 7 – $ 1, 350,000

———————–

TOTAL – $ 3,265,000

$ 3,265,000 / 7 = $466,428 (Average)

 

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Charles McDonald
Charles McDonald
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Charlottesville Solutions
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