A big Thanks you to Lenn Harley for this one. She has a wonderful grasp on many aspects of the real estate market. She provides a great explanation of the differences and usefulness of two often misunderstood terms that are used in real estate analysis - Median and Average Prices.
The Average selling price in an area will give you a glimpse of affordability but should not be used when preparing an offer. Don't be fooled by numbers that don't apply directly to the property you are looking at. Each property is unique. A Buyer's Representative Agent will provide you with a specific Market Analysis of the property you are interested in.
STATISTICS ARE A WONDERFUL TOY. I LOVE STATISTICS.
HOWEVER, THE DATA MUST HAVE SOME MEANING TO PRODUCE MEANINGFUL AND USEFUL INFORMATION. LET'S GET RID OF "MEDIAN".
The most recent market report for one area I follow on a monthly basis reports:
Average Sold Price Oct. 2009/2008: $ 375,565 $ 374,141 0.38 % Median Sold Price Oct. 2009/2008: $ 342,000 $ 310,000 10.32 % Clearly, the Average Sold Price above shows that prices are stable in this area. However, the Median Sold Price makes it appear that prices have increased more than 10% in the past 12 months.
HOW MISLEADING DATA HARMS THE CONSUMER. Would a seller want to use this data to overprice their home for sale?? You bet they would. Would this data lead a home buyer to believe that their newly purchased home would appreciate about 10% in value in the next 12 months? You bet it would.
Now, I know full well the meaning of median. However, I have yet to determine the value of median in evaluating real estate value. In fact, I've always avoided any mention of medianin market reports because, in my experience, sellers don't list for and buyers don't buy for the median price of homes for sale.
VOLUME vs. VALUE. I believe the government and national reporting services use median as a way to avoid meaningful data. It's meaningless to them but looks impressive in reports. Their interest is in amassing great volumes of data.
As a real estate broker and consumer of real estate data, I need meaningful data and information, the less the better to inform.
- Median is the middle. So what?
- Median means half are above and half are below. So what?
MEDIAN PRICE REPORTS MISLEAD CONSUMERS. Give me some data or information to which I or a consumer can relate. I have actually had consumers suggest that we should make offers for homes for sale based on the median prices for the area with no relationship to the actual property under consideration. A short description of what comparative market analysis means got the buyers on track. However, having the median data even published was a distraction for the home buyer. The consumer is always tempted to accept what is published vs. what is said by their agent.
MEDIAN = MUDDLED, MISLEADING and MINDLESS
AVERAGE = APPLICABLE, ACCURATE and AUTHENTIC
Courtesy, Lenn Harely, Broker, Homefinders.com, 800-711-7988.
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