The median price is the sales price where half the sales are above and half the sales are below it.
Basically, it’s the middle price of a number of properties for sale in a given time.
This is different to the average of mean selling price for properties.
The best way to explain the difference between average price and median price it is to look at the example below.
The table list 11 property sales, ranked in order from smallest to largest.
Average Sales Price
The average (or mean) price is calculated by adding up all of the sales and dividing them by the number of sales.
In this case, the total of all sales is $6,151,000, which, when divided by 11 sales, results in an average figure of $559,182.
Median Sales Price
On the other hand, the median price is the sales price where half the sales are above and half the sales are below it.
Basically, it’s the middle number.
So in this case, the median value is property 6 – or $450,000 – because 5 sales are above it and 5 sales are below it.
Why is median more often quoted?
Median values tend to be a better statistical measure because they represent the figure other numbers congregate around, or in the case of our example, where most of the sales sit.
This is why it is predominantly used in the residential property market where a suburb might have hundreds of sales in a year, or even thousands of properties used to calculate a yardstick value for the area.
Importantly, median values are less likely to be skewed by very high or very low sales.
Understand that a median sales price is based on what has sold
It is a common mistake that buyers or sellers assume the median sales price is the median price of all property in the suburb.
It’s the median price of all property that has sold in the suburb.
That means if your suburb is full of four bedroom homes which are quite expensive, but most of the sales are happening in cheaper 2 and 3 bedroom homes with people trying to enter the market, then the median price may be lower than you’d expect.
Equally, if a new block of luxury units goes to market when your suburb is dominated by flats built in the 1960s or 1970s, the median price might be higher than you’d expect because the expensive new units are where the sales were made.
It doesn’t automatically follow that every unit in the suburb is now worth that higher amount.
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