Tuesday, November 24, 2009

The Difference between Median and Average Pricing

Real estate data can be quite daunting at times, but to make intelligent investment decisions, it pays to get a grasp of the numbers.

One misunderstood but often quoted statistic is the “median price”. You find it everywhere when housing values are discussed. The method of compilation involves sorting the prices for all the houses or apartments sold in a particular period, from highest to lowest, and then selecting the middle one as an indication of the characteristic price for the area.

But the median price is not the same as the average price. They are two different calculations. If seven properties sold for $180,000, $200,000, $205,000, $215,000, $230,000, $310,000, and $2,500,000 then the median price would be $215,000 and the average price $548,571. That’s quite a difference!

“Averaging produces a figure that isn’t necessarily an accurate representation of what’s going on because it only takes one or two very high or low sales to skew the result,” points out Enzo Raimondo, head of the REIV. “It’s also important to remember that a median price is based only on the properties that have been sold, not all the property that exists in the area.”

The median price of an area should not be used to assess the relative value of a property. Individual streets, for example, can have large variations from the surrounding neighbourhood.

If you have a question about real estate, or would like assistance in locating a property, feel free to phone me, Noel Thompson Principal Professionals Logan Lifestyles at either Browns Plains 3800 4000, Marsden 3200 4495, Springwood 3808 5544 or Waterford 3299 7733.

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