Nicola Kelland - East v West?

Median Verses Average Values in Real Estate

Let’s start by discussing the “average”, also known as the “mean”. This statistic is fairly easy to understand and to calculate.

Compose a list of each sale price. A spreadsheet is very useful for this purpose. Next, calculate the sum by adding up all sale prices. Now divide that sum value by the total number of sales. You have now just calculated the average asking price for the sales in your market.

The median is also quite easy to understand and calculate. Let’s take another look at your sale prices. Arrange this list 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 your median sale price.

When your list has an even number of properties, the list will not have a single middle value, so find 2 values that occupy the middle space. Now take the average of these 2 numbers simply (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 sales data includes 5 properties, as shown below along with their respective asking prices.

• Property #1 $350,000
• Property #2 $370,000
• Property #3 $310,000
• Property #4 $1,200,000
• Property #5 $335,000

The first thing you notice is that one of these sales is much higher than the others. This will have a significant affect on the average value, which happens to be $513,000.

To determine the median, we first sort the list in ascending order, then pick the middle value, which is $350,000. Comparing it to the average, the median value is a much more realistic interpretation of this market.