Quite often you will see average sold prices for real estate listings or it may say median sold prices, but what is the difference and is there an advantage of one over the other?
Average sold price is simply the sum of all the sold prices divided by the total number in the dataset.
Median price is the middle number in a set of sold prices when listed in order. So for example if you were looking at the sold price for 5 homes you would put them in ascending (or descending) price order and the median price would the the 3rd number in the list so you had an equal number of homes above and below the median. If you have an even number of prices then you take the 2 middle numbers and divide by 2 to get your median sold price.
So as an example we have 5 sold prices:
In this example the average and median price are similar.
However, if we have one number that is significantly higher (or lower) then it can affect the outcome:
In this example you can see that although the median price is unchanged, the average price has been skewed by an extremely large number used in the dataset. However, the larger the dataset the less impact an extremely high (or extremely low) number will have on the average.
So what is the best number to use with real estate?
If we are doing a comparative market evaluation to determine a homes value then it is fine to use the average as we are only using similar homes and if there is one that is significantly higher (or lower) priced than there is likely to be a reason for it not be included in the market evaluation.
However, if we are just looking at pricing trends then the median can be the better one to use as it is not likely to be skewed by any sales that are extemely high or low.