When talking to clients in Anaheim Hills and the surrounding communities I am often asked how median price is calculated, and why it is used as a primary data anchor when measuring the health of the market place.
Median price is the price where half of the home prices are less than it, and half of the home prices are more than it.
If five homes have sold priced at $100K, $200K, $400K, $700K and $900K, the median price is $400K.
However, if five homes have sold priced at $100K, $200K, $400K, $1.5M and $7.5M, the median price is still $400K.
One might wonder: Why isn’t the average price used?
Using the same two examples as above, the average price of the first group would be $460,000 and the average price of the second group would be $1,940,000.
The median price is used as a measuring stick because it is less volatile.
This works okay for reporting purposes, but not for setting a fair market price on a home.
A fair market price is best based on the current sales price averages of like properties, in a like neighborhood, in a like area.
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