Tuesday, August 29, 2017 / by Susan Bradley
Here’s a question we get all the time in the real estate business. What’s the difference between average sale price and median sale price for a Portland Metro neighborhood?
Good question—because it’s like comparing apples to oranges. Each one gives a very different taste of the market.
Average Sale PriceLet’s start with Average Sale Price. It’s determined largely by the numbers on the extreme ends of the price spectrum.
To give a non-real estate example, if we have 5 people with ages of 1, 2, 3, 4 and 55, and we want a single number that represents the group's age, the average would be 13. We get the average by adding the five numbers and dividing by five.
But does 13 really represent the makeup of the group? Four people are 4 years old or younger and only one person is 55. What we really have here is a group of youngsters. The one older person is an anomaly in this example.
Jumping back to real estate, if we have 5 homes that sold for $275,000, 300,000, 350,000, and $375,000, and one home that sold for $2,000,000, the average sale price would be $650,000. Does this number give you a clear picture of this neighborhood’s home price range?
Not really, because most homes in the neighborhood sold for $350,000 or less. The $2,000,000 home sale is an anomaly.
Median Sale Price
Median Sale Price, on the other hand, is not influenced by extremes on either end of the price spectrum.
In the same general example as above, if we have 5 people with ages of 1, 2, 3, 4 and 55, and we want a single number that represents the group's age, that median would be 3. It’s the number at the exact midpoint between all numbers represented. Half of the numbers are above the midpoint and half are below. No mathematical formula or calculator needed.
And as you can see, the median number represents the profile of the group more precisely than the average number.
So back to our real estate example. If we have 5 homes that sold for $275,000, 300,000, 350,000, and $375,000, and one home that sold for $2,000,000, the median sale price would be $350,000. This is the number at the exact midpoint between all numbers represented.
The median sale price is a better indicator of general market price in a specific neighborhood, because it isn’t adversely influenced by extreme numbers on either end of the price spectrum.
Thus, if you’re looking at a Portland Metro neighborhood for recent home sales and every home in that neighborhood sold for around $300,000--except one special property that sold for $2,000,000—that one home on the high end of the price spectrum won't affect your perception of prices in that neighborhood. It’s the anomaly.
Comparing Average Sale Price & Median Sale PriceNow what happens to your perception of home sale prices for a Portland Metro neighborhood when you look at both average sale price and median sale price TOGETHER? For example, if the current median sale price for a neighborhood is $150,000, while the average sale price is $300,000, a probable explanation is that a few really expensive homes in that neighborhood recently sold and are skewing the average sale price calculation. To drill down further into the numbers for a specific area, look at the group of homes used to generate those numbers. For example, if there are 30 homes recently sold in a neighborhood, group them by price and look at the high end of the price range. How many homes are on the high end of the spectrum? Are the high-end homes the norm or an anomaly? To get a median sale price and average sale price that are as far apart as in our example above ($150,000 to $300,000) suggests several high-end home sales in a neighborhood dominated by lower priced homes.
Neighborhood Sale PriceWhen determining average sale price and median sale price in Portland Metro, it’s important to scope your area of interest as narrowly as possible. Portland has 95 recognized neighborhoods, each distinct in its characteristics and home values. The monthly statistical report compiled by RMLS divides Portland into four main quadrants (N, NE, SE, W) and lists 11 metro communities as well.
Here’s a look at the May 2017 Highlights:
RMLS May 2017 report showing highlights for all Portland Metro
As you can see, for all of Portland Metro (which includes suburban communities), average sale price and median sale price were not wildly divergent for this reporting period. There’s a $52,000 swing between the two price comparisons, with a few higher priced homes elevating the average sale price. Now if we drill down a bit in the same report, we can compare Portland’s four main quadrants for additional information:
RMLS May 2017 report showing quadrant data for Portland
Here’s a closer look at average and median sale price for the four Portland quadrants:
RMLS May 2017 quadrant comparison for Portland
Notice how the communities with the highest median sale price also have the greatest divergence with their corresponding average sale price. It makes sense that higher price neighborhoods contain some extremely expensive homes, which skew the results.
Portland by the NumbersTo gain even more info on each of Portland’s 95 neighborhoods and 28 suburbs, there’s nothing quite like Portland Monthly’s annual real estate review. You can learn so much about a Portland neighborhood or suburban city (including average and median sale price) from perusing these statistics.
- Portland Neighborhoods by the Numbers 2017: The City
- Portland Neighborhoods by the Numbers 2017: The Suburbs
Copyright 2017 Susan S. Bradley. All rights reserved.