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Real Estate Jargon Translator: #1 – Median Price

January 13, 2011

A lot of people come up to me and they say “Ted, you’re the real estate expert around here.  What the heck does “median price” mean?”  Or maybe they’ll say, “Hey Einstein, what’s an absorbtion rate?”

We real estate brokers are very good at throwing numbers around without giving much explanation as to what they mean.  So I thought it would be good to shed some light on these terms in order to give folks some clarification as to what exactly these statistics are telling them.

 Let’s start with the stat that gets the most attention in the media, median price.

 Median price is a single sale that exists in the exact middle (or median) of a list of sales.  For example, if you had 11 sales close on your street last month, the median sales price would be whatever house number 6 sold for in the list of the 11 sales that happened on your street that month.

Example of Median Price

The median sales price carries weight because it suggests what the middle of the market looks like.  The problem with this stat is that it is literally just one sale!  It does not take into account whether that market is “top heavy” or “bottom heavy”, number of days on market, original list price vs. sold price, ups or downs in inventory, or any other significant stat that points to where a market is trending. It is the fulcrum of the sales teeter-totter!

 It has always amazed me that in large markets where there are hundreds or thousands of sales taking place in dozens of smaller markets that make up its whole, that only one number is pulled out of the middle of a giant pile and touted as representative of the market.  Don’t get me wrong, median price is an important indicator but you simply can’t learn enough about a market from just one statistical category.

For example, in baseball, if a player strikes out 200 times in a season you might conclude that they are a terrible hitter.  But if you look further down their baseball card and see that the same player hit 45 home runs and had 115 runs batted in (that’s a lot of home runs and runs batted in for you non-baseball folks) in that same season, your opinion would be significantly altered.  

No stat should be looked at in a vacuum. 

With that in mind, in the next Real Estate Jargon Translator post we will add to the context with a look at Average Price.

Cheers!

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One Comment leave one →
  1. January 16, 2011 12:29 am

    I had always assumed that median was the favored real estate statistic because, unlike the mean, it isn’t skewed by outliers. The third leg in the popular triad of statistics starting with the letter m – the mode – is rarely used. Perhaps you should be a pioneer and start discussing the mode.

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