Why Median Price Rather Than Average Price

In its press releases, the Quebec Professional Association of Real Estate Brokers (QPAREB) uses the median price to report on changing property prices.

Let us examine why the median is generally a better indicator than the average when dealing with property prices.

The median is the middle point that divides a series into two equal parts. In our case, the median price divides all transactions into two equal parts: 50% of transactions occur at a price that is lower than the median price and the other 50% occur at a price that is higher. For example, a median price of $250,000 indicates that 50% of properties sold for less than $250,000 and the other 50% sold for more.

The advantage of the median as a measure of central tendency is that it is not adversely influenced by extreme values. Conversely, the disadvantage of average prices (and all averages) is that they can be influenced by extreme values, which can lead to major distortions that bias data interpretation.

Let’s take as an example, an area in which property prices typically sell in the $250,000 to $300,000 range. A property that is not representative of the area sells for $2,000,000.

This transaction pulls the average higher and results in an over-estimate of price growth in the area. The median price is not influenced by this $2,000,000 transaction. It thereby provides a truer reflection of the market in terms of prices and growth between two periods.

Regardless of whether the median price or the average price is used, the fewer transactions there are on which to base the calculation, the more the data needs to be interpreted with caution. The standard for this calculation is a minimum of 30 transactions. If there are fewer than this limit, the greater the risk that neither the median price nor the average price will provide a valid measure of the market value of all properties. The QPAREB therefore uses this 30-sale minimum rule to determine whether or not to publish a median or average price.