Real Estate Glossary > A > Average Definition

Averages are calculated by adding together each number in a set and dividing by the total number of values. When evaluating prices, many real estate economists look at the median The center value of an ordered set of data. When looking at a neighborhood's home prices, the median price is usually the best reflection of a typical price since it won't be affected by a few very expensive or cheap homes in the sample. price rather than the average price, because unusually high or low values skew an average. Consider for example a neighborhood where five homes sell in a month, for $300,000, $325,000, $350,000, $375,000 and $600,000. The average of those prices is the sum of those five numbers divided by five – in this case the average is $390,000. To calculate the median price, we arrange the numbers in order of increasing value and take the middle value in the set; in our example with five values, the middle value is the third number at $350,000. Even if the $600,000 had sold for $1 million, the median would remain $350,000 because the median only considers the middle value, dropping all high and low numbers. But the average would change significantly, increasing in this case to $470,000. On Redfin's site, we use both averages and medians. We average all data points when calculating the ratio of the final sale price to the list price for a neighborhood because most home-buyers want to take into account every value, even outliers. But we calculate the median $/sq. ft. The list or the sale price of the home divided by the number of square feet. for homes in an area so that a few fixer-uppers or gold-plated palaces don't distract us from the price of a typical home.

On Redfin, we use both averages and medians The center value of an ordered set of data. When looking at a neighborhood's home prices, the median price is usually the best reflection of a typical price since it won't be affected by a few very expensive or cheap homes in the sample. . We average all data points when calculating the ratio of the final sale price to the list price for a neighborhood because most home-buyers want to take into account every value, even outliers. But we calculate the median $/sq. ft. The list or the sale price of the home divided by the number of square feet. for homes in an area so that a few fixer-uppers or gold-plated palaces don't distract us from the price of a typical home.