Average and median are both measures of “central tendency,” in that they are intended to provide some indication of a typical or middle value of a set of data. The average is calculated by adding up all of the individual values and dividing this total by the number of observations. The median is calculated by taking the “middle” value, the value for which half of the observations are larger and half are smaller.
When there is a possibility of extreme values, the median is generally the better measure to use. To see this, suppose that five homes sold in a market with the following prices: $80,000, $90,000, $100,000, $110,000 and $500,000. The median price is $100,000, while the average price is (80,000 + 90,000 + 100,000 + 110,000 + 500,000) / 5 = $176,000. In this instance, the single high-priced home pulled up the average price well above the prices of the more typical homes in the market. Thus, the median price provides a better measure of the typical value of a home.