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In the world of residential real estate, knowledge is power. That knowledge, however, is only as accurate and reliable as the data on which it’s based. When considering the real estate market, two common metrics emerge: average sale price and median sale price. Though they may seem similar, they each reveal distinct facets of the market and they beg the question: when evaluating the real estate market, is one better to use than the other?
The Difference Between Average and Median
Before we answer that question, it’s crucial to understand what these terms mean. The average sale price is the sum of every sale price for all homes sold in a specific time period, divided by the number of homes sold; the result is a snapshot of the general price range in an area. However, it can be significantly skewed by outliers, such as unusually high or unusually low sales prices.
On the other hand, the median sales price is the midpoint of the sale prices for all homes sold within the same period. This means that half of the homes sold for more and half for less than the median price. It is less susceptible to distortion by outliers, offering a more balanced view of the market.
Why Median Sales Price Shines
Therefore, the short answer to the question is the median sale price may be a better metric than the average sale price. Utilizing the latest Market Trend Report from the Denver Metro Association of Realtors (DMAR) in May 2023, let’s explore why that is the case.
According to the report, the average sales price in Denver was $650,000 while the median sales price was $580,000. If you were to only consider the average price, you might get the impression that most homes in Denver cost around $650,000. However, this figure is likely inflated by a small number of multi-million dollar sales, making it less accurate as a measure of the overall Denver market. In contrast, the median sale price gives us a more balanced view, indicating that half of all properties were sold for less than $580,000, making this a more realistic benchmark for the typical home buyer or seller in Denver.
Real-Life Implications
The median sale price is both crucial and advantageous for buyers, sellers and investors. For buyers, especially when looking at statistics in individual or specific neighborhoods, using the median sales price as a guide can help shape realistic expectations for offer strategies as well as assist in budgeting and mortgage planning. Conversely for sellers, understanding the median sale price can help them set a fair and marketable selling price for their properties; listing prices that align more closely with the median are likely more attractive to prospective buyers and may result in more competition for their properties as well as a quicker sale. From the investor standpoint, the median sale price can provide a more accurate depiction of a market’s health and trends over time which can inform timing decisions about when to buy or sell properties.
In Summary, whether you’re a homebuyer, seller or investor, understanding the nuances between average and median sale prices can be critical to your decision-making process. The median sale price provides a more balanced view and serves as a more reliable and realistic reflection of the real estate market.
