Many of us don’t know the difference between median price and average price, or why median price is used more often. Let’s analyze the following data from a San Diego neighborhood with the following 9 sold homes to find out.
The median is where out of these 9 homes we have four homes priced lower, and four are priced higher, the median price is $325,000. On the other hand, the average price is calculated by adding all 9 homes and dividing them by 9, this is $5,631,000 / 9 = $625,666.
Median price: $325,000 Average price: $625,666
Median price is best used when analyzing a general area such a zip code, a city, or when there is a big discrepancy in price, such our example above.
Average price provides a sense of ‘true’ value when all homes are close in sale price and are of similar style, size, etc. Homes in a condo complex, or track housing communities would be the best candidates to use average price.
When local news speak about the ‘San Diego housing market’, they analyzes countywide sale prices where multimillion dollar homes and entry level condos are all consider. As shown in our example above, in that case median price gives us a better perspective.
When there are sizable discrepancies in sale prices the median does a better justices. When properties are close in sale price and comparable in all respects, average works best.