When To Use The Median Home Price? When To Use The Average Home Price?

Both median home price and average home price are pulled from the same set of numbers, but the two are usually very different – both in number and meaning.

While median represents the middle-of-the-pack price – what a home right in the center of a market’s offerings would cost – the average is a bit different. Instead, the average home price refers to the mean price of homes in an area, once added together and averaged out.

In our earlier example, the average home price would be calculated like by adding all home prices: $246,000 + $299,000 + $384,000 + $406,000 + $1,000,000 = $2,335,000. You would then divide that by the number of data points in the set (5, in this case), to get the average home price: $467,000.

As you can see, the average price is actually $83K more than the median home price, even though it uses the same data. Here’s a graphic that spells out just how different median and average prices can be for the same area:

The Benefit of Using Each

The average price is best used in situations where the dataset is evenly distributed – with plenty of numbers on the higher, middle and lower-cost end contributing to it. If it’s used in a smaller set, it can often be skewed by extreme prices on of either end of the spectrum.

The median home price, on the other hand, is a great choice when data sets are small and not evenly distributed, as it’s not impacted by extreme numbers. It’s also a better option when looking for the price of a “typical” home in an area, as it’s harder to skew with the occasion million-dollar home sale or bargain-basement foreclosure.

The important thing to note is that median home price and average home price can be quite different – particularly if prices aren’t evenly distributed. Make sure you know what type of data is being used before you take either number into account in your home search.

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