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Why is a smaller house across teh street and 20 years older than mine listed higher value?

My home, built in 1995 has 1800 sf and a water and mountain view.  Zillow value: $257,000.
Neibor across the street built on 1964 has 1400 sf and no view.  Zillow value: $265,000.

Please explain the algoritym for this Major Discrepency.
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September 14 2012 - Poulsbo
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