The norm here in my town is smaller houses fetch less per sq ft than larger houses.
In the area I bought the average house is 800 to 900 sq ft. These houses have fallen to as low as $69 a sqft.
These houses are so low, because the house is small. People want bigger houses. It's still a desirable location, so larger houses are worth much more than that up to $89 to $97 a sq ft. Especially being rare, as houses more than 1700 sq ft make up less than 15% of the over all houses. It takes a while before one comes up for sale, I waited 3 years to get mine.
So while a 900 sq ft house here is and should be worth 63K, a 2000 sq ft home is worth 178K@$89(or more) just as easily as it would be worth 138K at only $69 sqft.
Zillow doesn't take into account Location either. You'll see a row of houses on a Canal with ocean access, with the same value as the houses across the street, not on a canal.
I just use Zillow to ogle at the other stats. Price is not a factor I pay attention to. The guy that sold this house to me, made that mistake.
Zillow is worthless for price comparisons. Data disappears frequently (sale prices/changes) and is often wrong (property taxes, #bedrooms). Seeing the overhead picture and the SQFT is about all it is good for. It doesn't even reliably show homes for sale.
Zillow is just a website. Their numbers are purely advisory, not a real fact.
You shouldn't take every number on the internet as an absolute truth. For example property values are calculated by averaging house prices within 10 mile radius. But in Los Angeles you can go just a mile and move from a destitute neighborhood to a high end residence. One would cost a million a house, other they would pay you to live in.
Markets are not realistic, prices are not realistic, estimates are not realistic. The only thing that is real is what you are willing to pay for it. Go with that and that is how you will know.