That's because Zillow.com calulates values using square footage! Calculations don't make it so! I won't disagree that square footage plays a very significant role in value, but how significant will vary.

Their estimates are interesting to look at, but are subject to error from many sources. A place with bad paint, a cracked/shifting foundation, termites, no central heat and a bad roof doesn't have those things properly accounted for. Also, one nearby property selling unusually high or low for some odd reason with throw off the numbers for the other properties nearby. I saw that with a apartment to condo conversion where the last unit went to a family member of the developer for a much lower price. As the other units sold, local houses were seeing a rise, when that last one sold there was a $30,000 drop.

Even actual selling prices aren't too reliable of an indicator now with such a disturbed market. Bankruptcy sales (or panic sales to avoid bankruptcy) certainly can distort values.

It'll vary with the market, but I think I'd feel safer testing estimated value against other criteria. The price is a fairly safe one if rental income could cover payments on a 30 yr fixed loan for 90% of the amount (the rest being the down payment). At least that method isn't so easily disturbed by erratic pricing nearby.