Saturday, December 1, 2012

What Is The Median Price And Why Is It Used In Real Estate?

There are many ways that can be utilised to measure the value of a piece of property. These include the mean price, or what is more commonly known as the average, or the median price, which is actually the standard in real estate. A lot of people tend to confuse these two measures and even believe that they are one and the same. However, there are fundamental differences between the two, and it's important to distinguish one from the other to understand their implications in the business.

The main difference between average and median prices is the way they are computed. The average price, or mean, is calculated by adding up the values of a given set of numbers and then dividing the sum by the number of items in the data set. The median price, on the other hand, can be calculated simply by sorting the values in the data set in order and then finding the value that is in the middle of the set. For example, in a set of five numbers, the median is the third number. In an even-numbered set, the average of the two middlemost values is the median.

The median price is, as mentioned previously, the standard used in determining property values in real estate. This value is often instead used of the average price because it is not prone to the effects of extreme sales, unlike the average price. These extreme values, or outliers, are those houses and other properties that have been sold for exceptionally low or high sale prices. These values can make the average lean more towards one of the spectrum if more houses on that end have been sold. For example, if expensive houses have sold more than lower-priced properties in the last year, then the average would be higher. On the other hand, if the sale of cheaper properties has increased more than that of high-priced houses, then the average would be lower. The median price is not affected as much by these extreme sales, thus making it a more accurate estimate of house prices in the market.

Home buyers may look at median prices in property reports to find a location that is more fitting for their budget, while sellers can use this information to set an acceptable range for negotiations. Checking out median prices can also be beneficial for people who are thinking of leasing their properties to tenants, as this can be used to compute for fair rental prices for a given piece of property.


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