Measures of Central Tendencies

Buyers and sellers are most familiar with unit of comparisons (pwf, psf, pff, etc.) The “averages” are an indicator of centralizing tendency of data. There is a ranking of these: Median and mean are usually the highest; geometric mean (used for yield rates) is next lowest; and harmonic mean is the lowest.

Harmonic Mean in use, which comes from Business Appraisal Practice, 3d quarter 2011 by Toby Tatum, MBA, CBA:

Suppose you have an SUV and an economy car each of which drives 1000 miles. The SUV gets 10 mpg (a rate: miles/gallon) and the economy car gets 30 mpg. If you average 10 mpg and 30 mpg, (10+30) / 2, you get 20 mpg (the mean). So for 2000 miles travelled, at an average of 20 mpg, they should have used 200 gallons. But work it the other way:

The SUV used 100 gallons; the economy car used 33.3 gallons. A total of 133.3 gallons used to travel 2000 miles = 15 mpg (rounded)–which is the harmonic mean of 10 and 30.

So, while median and mode might indeed be interesting, they’re the wrong measure of centralizing tendency for rates or ratios. That would include average daily rates, vacancy rates, and average cap rates.

There’s lies, damn lies and statistics. For gosh sakes, call a freaking professional like Mims. We shoot straight and explain the differences.

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