The Fallacy of an “Average Sales Price”

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Don’t believe everything you see in the media. You probably hear that all the time, but surprisingly, most people still do- especially when there are numbers- statistics to back up the claims. But there are many ways to look at data. People mine it, disect it, twist it up, slice it into pieces and then put it back together again to make whatever point they are trying to make. But different people can make the same data look entirely different by the way the present it and by choosing the pieces of that information that will best suit their needs. So what does this mean? Well, if nothing else, it at least should tell us to be careful not to simply take stats for the way they are presented.

Case in point- Average Sales Price. What is an average sales price and what does it tell us? Well, again that depends on the data being used. Here’s what I mean…

If the “average sales price” for an area (residential homes) is $280,000 and last year the average sales price for the same area was $290,000 does that mean that property values have gone down?

Absolutely not. It may simply mean that more lower-priced homes have sold this year than last year. Maybe this year twice as many homes under $280,000 have sold than last year and less homes higher than $280,000 have sold this year. Even if each of the homes that sold this year appreciated by 10% over last year, just by having more lower-priced homes sell the “average” would make it look like the values have gone down.

And this is how the media finds it’s stories and makes some markets look much worse than they really are. In Salt Lake the local newspapers have ran stories about the average sales prices and how prices are down, then a day or two later there are stories about how we are still leading the entire nation in appreciation (as recently as the end of June) with over 15% price increases as of the end of the second quarter (end of June).  So how is it that average sales prices are down, but prices are still rising? Because the report that shows prices rising seperates home-sales by zip code, so you see home prices compared to prices from last year in the same zip code, not how they compare to the entire county.

When it comes to the media, just remember that their entire purpose is to sell you stories. Sometimes stories happen and they are reported, and other times, stories are created.

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7 thoughts on “The Fallacy of an “Average Sales Price”

  1. I love the cigarette ad.

    Scary newspaper stories sell better than optimistic ones. If you are interviewed by the media, you can bet that you will be taken out of context; any upbeat information will be omitted.

  2. Pingback: Voting for this week’s People’s Choice Award is open | BloodhoundBlog: Real estate marketing and technology blog | Realtors and real estate, mortgages, lending, investments

  3. Nice- make sure you record it so you can post about it- the media strikes and it’s good to call people out on irresponsible/sloppy reporting.

    Good luck and have fun with it!

  4. Yes, “average sales price” in the real estate business provides a very simplistic, and often incorrect, view of the market. What makes it even worse is that real estate agents quote this figure to mean one thing when talking with home sellers and another thing when talking with home buyers. The agents often try to scare sellers in one zip code into selling (more quickly and/or for a lower price) because “home prices are down!” Yet the same agents also tell buyers that they need to pay more for houses in another zip code because “home prices over there are up!” In reality, it may simply be a matter of lower priced houses selling in zip code 1 because that’s where people are selling more these days due to personal financial strain, while people in zip code 2 aren’t under as much pressure because they are not hurting as much from this financial crunch. Yes, there may be better deals to buy in zip code 1. But this does not mean that the value of a particular house is down in zip code 1 and the valude of a particular house in zip code 2 is up. Zillow and other online real estate valuation services these days are FAR more accurate and providing home values than any real estate agent I’ve spoken with (and that is very many) the past couple years. Makes you wonder (more?) why anyone would pay a real estate agent more than a couple thousand dollars for their services, if that…

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