When you’re purchasing a home or selling a property, you might evaluate the average sale price or the median sale price in your area. But what’s the difference between the two figures, and which figure should you rely on as a valid measure of typical home prices?
The Difference Between the Median Sale Price and Average Sale Price
The average sale price is calculated by adding all the sale prices for homes sold in a specific area within a specified time frame and dividing that total by the number of properties sold. For instance, if ten properties sold in a city in the last 30 days, the average home price would be calculated by adding the sale prices for all ten properties and dividing that figure by ten.
The problem with the average sale price is that if one or more properties were sold at an extraordinarily high or low price, the average is skewed higher or lower as a result. In this case, the average becomes a somewhat unreliable metric.
The median sale price, on the other hand, is the sale price in the middle of the data set when you arrange all the sale prices from low to high. The median sale price, then, represents the figure at which half of the properties in the area sell at a higher price and other half at a lower price. The U.S. Census Bureau lists national median and average sale prices for the past several decades, and the Federal Housing Finance Administration uses these and other figures to create the House Price Index.
Is the Median Sale Price or Average Sale Price a Better Figure?
Both the average sale price and median sale price can be valuable when you’re trying to determine how much you could expect to spend on a home in a particular area. It’s important to remember that the average sale price may be skewed due to outliers in the data (if a property has sold for a price far higher or lower than typical for the area).
When you’re selling a home and using the average sale price and median sale price to help you determine the ideal listing price, it’s a good idea to calculate both. When you list the current listing prices in your area or the sale prices for recently-sold properties, you can easily determine if there is an outlier that could be inflating the average price calculation.
When an outlier is present, you can decide to use the median listing price or median sale price as your benchmark or evaluate the outlier property further to determine whether any special features or circumstances of the sale could also apply to your property. Take all such findings into consideration.
For more advice on how to make the most money from selling your home, contact me today.