Median vs. Average – Add Context, Add Value!
| October 25, 2011
If I told you the average sale price of single-family house in Alberta had risen 15 per cent in the past year, you’d probably be pretty excited if you were a seller and likely a little taken aback if you were planning on entering the market as a first-time home buyer.
Would you have any questions about that number, though? Would you want to know how many homes have sold? Would you want to know what the most expensive/least expensive property was? Would you want to know the median selling price?
The average selling price is, of course, the total dollar volume of all property sales divided by the number of property sales.
The median of any group of numbers, on the other hand, is the middle number in a sorted list of numbers. It is the number above which half of the other numbers lie and below which the other half of the numbers lie. For example, take 2, 10, 15, 38, 50. In this sample of numbers, the median is 15. Half of the other numbers are larger than 15 and half of the other numbers are smaller than 15. The average of these numbers, for anyone interested, is 23.
Both the median and the average have a role to play in explaining housing market conditions.
Average dollar values can be skewed if there is a particularly expensive or particularly cheap property that sells in the time period being looked at and that’s why including a median price in your statistics package can help add some context for clients and potential clients.
Consider the following selling prices.
$250,000 $300,000 $350,000 $400,000 $5,000,000
In this case, the average selling price is $1,260,000, but the median is only $350,000. If you were talking to a potential client, which dollar figure would you give?
The other interesting thing about statistics is they can be manipulated, and whether you’re using median, average or both to make a point, it’s important, that as a real estate professional, you add some context. We can’t ignore the fact there are huge differences in house prices in different neighbourhoods. It is likely not a transparent view of a city’s real estate market to use an average selling price for the city as a whole to advise a buyer that a house in which they are interested is worth its listing price. Make sure you give the buyer appropriate data to make their decision. That may mean giving them average prices in the neighbourhood, median prices on their street….or some sort of combination. Of course, there’s nothing saying you can’t provide them with statistics about the city (or province) as a whole, but make sure a client’s decision is based on the most appropriate data for their situation.
As an industry professional, you are expected to help buyers and sellers make decisions that make sense. This is part of providing competent service. If you are representing a buyer, you want that buyer to get a good deal and not pay more than the house is worth. If you are representing a seller, you want to make sure they get as much for their home as they can. Using the appropriate statistics, and explaining them if necessary, is a big part of that process and a big part of why consumers will hire real estate professionals to represent them. Add some value. Give consumers something they can’t get from a website or a news article.
What other statistical comparisons do you bring to a client’s decision making process? What do you think is more important to consumers – average, median or something else entirely?