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## What Is the Difference Between Median Sales Price and Average Sales Price and Why Does It Matter?

There is a lot of real estate data for specific areas which, if read correctly, can be of great help to you. The only problem is that a person practically needs an economics major to decipher this data. That’s why I decided to show how to read this data in a series of articles.

In this first article, I decided to explain the difference between average selling price and median selling price. These terms are misleading because most people think they are the same thing and get confused when they find out that they are not.

The average sale price is equal to the total of all prices in the entire area divided by the number of houses. It sounds complicated, but it is really very simple. It’s just the average of the selling prices of all the houses in the area. Here is an example to help you. There are five houses sold in an area for $500,000, $430,000, $470,000, $700,000 and $600,000. The total is $2,700,000, so we divide by five to get the average of $540,000.

Median selling price means something quite different. The median is the middle (center) number of a list that is sorted from lowest to highest. So the median in our same example above is $500,000, since $500,000 is the middle number in the list $430,000, $470,000, $500,000, $600,000, and $700,000. If the list has an even number of houses, the median is the average of the two middle terms. For example, let’s add one more house to the previous list. Our list is now $430,000, $470,000, $500,000, $600,000, $650,000 and $700,000. The median is $550,000, since $550,000 is the middle of $500,000 and $600,000 is the middle two digits.

When it comes to housing stats there is usually a lot more on each list and the mean and median are usually quite different.

Now that you understand the difference between mean and median, you might be wondering why these numbers matter. These numbers not only tell you about an area individually, but together they give you important information that many don’t know and can help you gain an edge.

When the average is above the median, it means there are more homes in the area that are cheaper than the average. When the average is below the median, there are more homes in the area that are more expensive than the average. The greater the difference between the mean and the median, the better or worse the area can be for investing.

This information is essential in a number of situations. If you want to flip a house for profit, it would be better to flip a cheaper than average house in an area where the average sale price is lower than the median sale price. This would mean that your cheap house would be in a good neighborhood and would generate more profit by upgrading it.

We’ve taken our first step toward being able to read real estate data and use that data to gain an edge over our competitors. We learned the difference between average selling price and median selling price as well as how we can use this information to learn things about an area that your competitors don’t.

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