What’s The Difference Between Average and Median Home Price?

Many buyers and sellers want to know what the average home prices are in Raleigh NC. Many sources will report this data online, but it can be confusing when both average and median home prices are listed.

Is average and median home price the same thing? If no, how are they different? Why does the average home price always seem to be greater than the median home price?

What Does Average Home Price Mean?

The average is the easiest to figure out. You just add up all the sales prices in the area, usually broken up by county (Wake County, Durham County, etc) and divide the total by the number of sales in a given period of time.

Let’s look at a hypothetical example of 5 houses that sold in a subdivision over a period of 1 month.

Num. of SalesTotal Dollar Amount Of Each Sale
1$200,000
2$225,000
3$250,000
4$300,000
5$325,000
=$1,300,000
/5$260,000 is the average
Average Price

What Does Median Home Price Mean?

The median sale price is the number in the middle of the set when you arrange all the sales from lowest to highest.

Look at the example below:

Num of SalesTotal Dollar Amount of Each Sale
1$200,000
2$225,000
3$250,000 (Median)
4$300,000
5$325,000
$250,000 is the median
Median Price

As you can see above the median sales price is the price that is in the middle.

You may notice that the average price $260,000 and the median price is $10,000 less at $250,000.

Ok, so what? Why not just use the average price if its easier to calculate?

The challenge with average sales price become obvious when you have an irregular number, such as a very high sales price, that skews the set.

Lets look at another example.

Let’s say 5 houses have sold in the past month in one particular subdivision. And one of those sales was a much larger home that sold at a higher dollar amount.

Num of Sales.Total $ AmountTotal $ Amount
1$209,000$190,000
2$200,000$200,000
3$219,000$209,000 (Median)
4$190,000$219,000
5$399,000$399,000
Total$1,217,000
Avg.$243,000Med.$209,000
Average Vs. Median

Look at the difference between the average sales price of $243,000 and the median sales price pf $209,000, a $34,000 difference. This demonstrates the fact that an unusually high number has a tendency to skew the data.

Why Should Buyers and Sellers Look To The Median Number?

If you’re a buyer, and your budget it $200,000, and the average price of a home in the subdivision is $243,000 you will most likely assume that a particular area to be too expensive. But if you look to the median of $209,000 then is it worth looking? Absolutely!

If you’re a seller you want as many buyers to see your property as possible. Also, the median works for the opposite scenario. Maybe there was a home in your area that sold at a really low dollar amount, maybe a foreclosure. And that number drags down the average value for your area.

This is important for those looking at market data in Wake County, and Durham County. As of this writing, there are multiple houses for sale in Raleigh NC listed at over 9 million dollars. When you look at the average home prices in Raleigh it will include sold homes, not listed homes, but these large multi-million dollar sales have a tendency to skew the data. This is the main reason why the average price is always larger than the median price.

If you have any questions about this feel free to post in the comments.

Thanks for reading!

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