Each month, those of us who follow real estate see an avalanche of statistics and reports assessing what happened over the previous 30 days. With coverage in the Denver Post, the Denver Business Journal and countless other blogs and publications, it’s relatively easy for consumers to be confused if they don’t understand the numbers.
One of the biggest points of confusion has to do with the “average” sales price versus the “median” sales price.
Take a look at these figures from the Denver MLS for September:
AVERAGE SALES PRICE
The average sales price for September of 2012 was $282,305. All sales are added together and then divided by the number of sales to derive the average sales price.
MEDIAN SALES PRICE
The median sales price for September of 2012 was $255,000. All sales are lined up in a list ordered from lowest to highest, with the sale exactly in the middle becoming the median sales price. In other words, the median sales price tells you the number at which exactly half of the sales were higher, and half were lower.
WHICH METHOD IS MORE ACCURATE?
While it can be debated, many consider the median sales price to be a better indicator of the market. This is because the average sales price tends to be skewed by outliers, usually multimillion dollar properties. Look at this example below:
- - $112,000
- - $132,000
- - $140,000
- - $146,000
- - $178,000
- - $275,000
- - $1,000,000
In this example, the median price would be just $146,000 while the average sales price would be a whopping $283,285.
The median price does a better job of showing you what’s happening for most buyers, because it tracks which way the middle of the market is trending. Therefore, I consider it to be more statistically accurate.
If the median home price for closed sales in September of 2012 was $255,000, can you guess what the median price was for Denver homes in September of 2011? It was $229,804, meaning the median price for a home in our red-hot market has increased 9.9% in the past year.
Nothing “average” about that!