In real estate, both the average sales price and the median sales price are measures used to understand the pricing trends within a specific market. However, they represent slightly different concepts and can provide different insights into the market conditions.
Average Sales Price: The average sales price, also known as the mean sales price, is calculated by adding up the total sales prices of all properties sold in a particular area during a specific period (such as a month or a year) and then dividing that sum by the total number of properties sold. Mathematically, it is represented as:
Average Sales Price = Total Sales Prices of Properties / Number of Properties Sold
The average sales price is sensitive to outliers or extreme values, meaning that a few very high-priced or low-priced properties can significantly skew the average. As a result, the average sales price may not always accurately reflect the typical or most common pricing within the market, especially in areas with a wide range of property values.
Median Sales Price: The median sales price, on the other hand, represents the middle value in a list of all sales prices arranged in ascending or descending order. To calculate the median sales price, you simply arrange all the sales prices from lowest to highest (or highest to lowest) and identify the price that falls exactly in the middle. If there is an even number of sales prices, the median is calculated as the average of the two middle values.
The median sales price is less affected by outliers compared to the average sales price because it focuses on the middle value rather than the total sum of all prices. It provides a more accurate representation of the typical or "average" property price within the market and is often used as a more reliable measure of central tendency in real estate analysis.
Key Differences:
The average sales price takes into account the total sum of all sales prices and divides it by the number of properties sold, while the median sales price identifies the middle value in a list of all sales prices.
The average sales price can be influenced by outliers, while the median sales price is less affected by extreme values.
The average sales price may not accurately reflect the typical pricing within the market, especially in areas with a wide range of property values, whereas the median sales price provides a more reliable measure of central tendency.
Both the average and median sales prices are valuable metrics in real estate analysis, and they are often used together to provide a comprehensive understanding of pricing trends within a specific market.