As far as I can tell, Zestimate works by taking prices of recently sold nearby houses and then estimate gain over previously sold prices or the property tax est

As far as I can tell, Zestimate works by taking prices of recently sold nearby houses and then estimate gain over previously sold prices or the property tax estimates. If Zillow wasn't in the picture, you would likely do the same thing. This obviously would generate inaccurate estimates if house wasn't in market since many years or if nearby houses are too different or too few. Another source of inaccuracy is that they don't seem to take in account school zoning very well. So house in good school area can inflate price of nearby house which doesn't have same school. In my experience, Zillow has played big part in house pricing. Seller in hot market will almost always set the max of Zestimate and price in their mind. That prices decreases only slowly over time if buyers don't show up. In hot market usually some sucker will show up anyway and Zestimate becomes self-fulfilling prophecy.