Understanding real estate statistics; avg vs. median etc.

marys1000November 26, 2008

Every so often I try to read the area board of realtor statistics and I get really confused. To say I'm math challenged is probably the understatement of the century.

There are three things that get mentioned

depreciation (although this wasn't in the stats for August which is the latest month)

average sales price

median sales price

What do these mean in terms of real estate? Why do they list them all? By year? by month?

How do these help you as a buyer? Or alternatively as a seller trying to price a house?

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Hello and Happy Thanksgiving Eve, Marys1000,
Depreciation is the amount, usually expressed as a percentage, that values have fallen over a certain period. Average sales price is arrived at by totalling all the sales as to dollar amount and dividing by the number of sales. Median sales price is the mid-point of sales, at which half of the homes sold above this point, and the other half sold below. Tracking these figures will assist in determining what direction the market has been heading, and thus how competitive you need to be with your pricing and condition if you are selling, or how
"low can you go" if you're buying.

Other very important statistics include the absorption rate,(number of homes available vs. number selling), ratio of list price to sales price, days on market, and cumulative days on market. Cumulative days on market adds together all the days a given property has been on the market including different listing periods with different agencies. Days on market may reflect only listing period and agency afterwhich the property sold. As with any data, the data itself is only "raw data", and is subject to meaningful interpretation by a knowledgeable person, whether a thorough real estate agent, or another person who stays up on school districts, floor plans preferences, builder incentives, tax levels, industry hirings, etc. And just as "all politics are local", and it doesn't really matter what the average temperature is in the nation, these statistics are only relevant when applied appropriately/locally to your slice of the real estate market.

Sorry if this sounds wordy--I really get too much that way. And is there another question behind your question on this data? Did I miss something?

    Bookmark   November 26, 2008 at 11:03PM
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Another thing to be aware of is whether the data reflects all homes or just Single Family Homes. As I recall, you are looking for a SFH.

If a community has only SFH, its median price may be higher. In a neighboring community with more condos the median is likely lower.

Yes, it is all *local*. For instance, although the Realtor Assn. of Maui breaks down its sales stats by condos or SFH homes or vacant land within a given town, that's not as meaningful to me as the listing and sales data within my specific condo complex of 320 units.

    Bookmark   November 27, 2008 at 10:28AM
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The average sale price is just that, the average.
It can be misleading, especially if there are few sales.

It only takes a singe high value sale in a small group to grossly affect the average.

The median sale price is the middle price of all the sales.
Half the sales are for more, half for less.
It is a better indicator, especially in smaller populations.

the perfect example is the average income of 9 men in a bar.
Say it is $50,000.
Bill Gates enters the bar.
The average income is now many millions per person.
The median would have barely moved.

    Bookmark   November 28, 2008 at 2:51PM
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As a new realtor myself, I had the same question regarding the difference between average and median. Everywhere I looked, the answer was the same, telling me what they are. I KNOW what they are, but I want to know what they MEAN together. No one could tell me that.

So I made up sample data sets and figured it out on my own.

Average is the average, ok we know that. If the Median price is very close to the average, then that tells us that all the home sales are mostly evenly distributed along that range from low to high.

If the Median price is further away from the average, whether high or low, that tells us that although the average says one thing, in fact a greater proportion of the sales are either on the higher or lower end of the spectrum.

For example, let's say in a given market if the Average Sale Price is $550,000, and the Median Sales Price is $540,000. That means that mostly the sales were evenly distributed from whatever the low sale was and whatever the high sale was.

But if the Average Sale Price is $550,000, and the Median is $300,000, then that tells us that most homes are selling nearer to $300,000, while a smaller number are pulling the average up.

Vice versa if the median is $700,000, then most homes are selling closer to that general figure, while a few low sales are pulling the average down.

This may seem obvious, but nobody could tell me this when I asked around. How you use this information is up to you, maybe it will help your understanding of your market a bit better. Good luck, because you will be on your own.

    Bookmark   October 25, 2010 at 5:43PM
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