For instance, there are 5 people who's ages are 1, 2, 3, 4 and 55. If we want single number that represented this group's age ...the average would be 13. Well, 13 is a terrible representation of the set. On the other hand, the median of this group is 3. ...which is a much more accurate representation of the entire group's age.
So in real estate, the same principle applies. I like using median figures to describe market statistics because it isn't adversely influenced by extreme numbers. If i was looking in an area for recent sales and everyone was around $200K, but there was one special property that sold for a million...it won't affect my numbers when calculating with medians.
In your example where the average list price is 307K and the median sale price is 146K and falling... the likely explanation is that there are a few really expensive homes on the market that are skewing the average price calculation. The median sale prices reflect a more accurate representation of market value in that area "in general."
To really figure out what's going on in this case, you really need to look at the set of homes being used to generate those numbers. If there's 30 homes on the market and you list them all out by price... look at what the high end of the price range is and how many of those there are. To get it that far apart (307 to 146K) would likely require several super high ends...
hmm.....another explanation could be the houses on the market are just crazy priced across the board. One way to find out is to compare average and median figures for the same set. You said the average list price is 307K...what's the median list price? If those two numbers are way off, then my original explanation is most likely correct. If those two numbers are close to each other ...then asking prices are just crazy and not in line with what the market is doing. A good cross-reference is time on market for those houses.
It's better to compare average list price to average sales price, and median list price to median sales price. As was pointed out, extremes in a range can skew an average, so it's best to throw these "outliers" out for a more meaningful number. For example, suppose five homes in a neighborhood sold for $180,000, 220,000, 275,000, 290,000 and 800,000. The average is $353,000, but would this really be indicative of the price of homes in the neighborhood? Of course not, but if we throw out the $800,000 outlier, the average price is $241,250 -- almost a $112,000 difference! Obviously, $241,250 is a better indicator.Also, percentage changes in the average and median over a period of time show trends.
Statistics can be very useful, but also misunderstood or even misleading. Not all real estate professionals have a good grasp on statistics -- this is not a part of their training -- but if they know their neighborhoods they can give good advice on the market value of a home. A question I would ask any real estate agent is, "How do you determine market value"?
"Imagine, someone buys a house for $200,000, loses it in foreclosure and the bank sells it for $160,000. An investor buys it, paints it and sells it for $200,000. Case Shiller index includes the foreclosure sale because it happened after one year and excludes the investor sale because it took place in less than six months. According to the index, the property value dropped $40,000. The point here is that most weight is afforded to sales that may be distress situations."
Further, the index excludes condos, co-ops and new developments. How can this be a barometer of the housing market in micro-markets where there are a lot condos, such as Washington, DC? There are more criticisms about the Case-Shiller index, but as long as one doesn't rely on it exclusively and regards it as just another angle to viewing the market, it has its uses.
No single methodology can do it all, but you have to be able to home in on micro-markets and markets-within-markets (e.g., neighborhoods) to get a good sense of market value. Broader measures such as Case-Shiller aren't very useful for that.
Median price = 50% above and below the middle price point.
Average = all home sale price added together and divided by the number of sales.
OK. Now, in the US, the median sale price of homes is going DOWN. Why, because homes on the lower end have the biggest turnover (sell faster) and homes on the upper end (that tend to increase the average price) are moving more slowly. Also, there are fewer UPPER END homes. So, when they do sell, the average goes up. In some areas, the upper end tends to be insulated from the subprime mess we are in nationally, in others the time on market spreads out to 6, 12 18 and even 24 months. The actual NUMBER of homes in an upper tier (say $1,000,000 to $1,500,000) may be10 or 15. So, one sale at $1,500,000 !moves the AVERAGE up pretty quick. But this does NOT mean you can sell an upper tier home faster than a home below the median. The LINK below gives an interesting perspective on the two measurements when referring to income. Might help.
Its the same thing I have tried to explain to some folks...Even if a home has a particular "value," the "fair market sales price" will rise and fall depending on trendiness, competition and inventory vs. availability. Say my home is worth 550K and I know this...because of the volume of listed homes, many of which being sold as "distressed," if I had to sell now it would have to be listed at a lower price...the value is more factual and the sales price right now seems to be more in the abstract...falling a little day by day. list price and sales price are so different for a few reasons all pretty much based on the scenario above. Everyone is looking for a good deal if they don't get the good deal the house won't sell..so if there are 2 homes 1 50k less, the lower one will sell and likely at an even lower price than that (probably closing cost too), driving down the median sales price. Meanwhile the home at the higher price stays listed and provides other agents with a basis to over price more homes... =)
If you're selling your home its the "solds" that matter.
Hope this helps.