Average and Median
Many times when you read about real estate, like this one about the Quad cities, the writer uses words like average and median when describing prices in the area.
“The spring real estate market is strong in the Quad Cities, according to the QCA Realtor Association. Homes that are priced right and in good shape are going under contract in some cases in a matter of hours and sometimes with multiple offers.
“We have been low on inventory in the Quad Cities for probably the last year and a half or more, so there’s a pent-up demand from buyers,” said QCA Realtor Association president-elect Regen Johnson. And new construction as well has not been moving at the pace as it has been in the past.”
Ruhl and Ruhl Realtors report that in the first three months of 2018 the average sales price of a home in the Illinois Quad Cities is up 12 percent from a year before. That compares to an increase of 4 percent in the Iowa Quad Cities during the same time.” This is where the writer uses median, as in “…the first three months of 2018 the median sales price of a home in the Illinois Quad Cities is up 12 percent from a year before.”
Average and Median
Judy Hedding at About.com wrote an article explaining the difference between median and average. First, let’s show how the median price is derived.
Here are 11 fictional home prices.
- $100,000
- $101,000
- $102,000
- $103,000
- $104,000
- $105,000
- $106,000
- $107,000
- $650,000
- $1,000,000
- $3,000,000
The median price of these 11 homes is $105,000. Five homes came in with a lower price, and five homes came in with higher prices. The median really is the middle value. 50% of values are above it, and 50% below it. So when the data is not symmetrical, this is the form of ‘average’ that gives a better idea of any general tendency in the data.
The average price of these 11 homes is $498,000. That’s what you get if you add up all those prices and divide by 11.
What difference does it make?
Suppose you have a fine French chair you brought back from your trip to Europe. You went to Europe to celebrate your wedding anniversary. A friend comes over and asks if this chair will support her. She weighs 250 pounds. “Oh yes,” you say. “It will support the average weight of 498 pounds.” She sits, and your fine memento collapses into fragments. You meant to say it will support the median weight of 105 pounds.
Knowing how average and median are arrived at gives you the information you can act on. Suppose you are looking for a house and your realtor says, “The average price of a house in the Cedar Rapids area is $498,000.” You might get discouraged if you are looking for a house priced at $105,000 and say to your spouse, “Honey, we can’t afford to live here. The average house is way above what we can afford.”
However, if your realtor says, “The average price of a house here is $498,000, but the median house is priced at $105,000.” You could take heart that you will find something in your price range, for of all the houses on the market right now, 50% are priced at $105,000 or lower
I suspect some use median to show prices are low and affordable and average to show the high prices you can get for your house if you sell now. It’s just marketing.
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