I agree that the OP implicitly made many incorrect assumptions, which explain his confusion. Let’s state the main principle:
Prices are set by the market, and they fluctuate over time. House prices are NOT determined by Zillow, not by the homeowner, not by replacement cost, not by the government, not by “fairness”, not by the present value of future rent income, and not by what the last buyer paid.
Like someone wrote above, a house price today is what someone (not related to the seller) is willing to pay today (of course allowing for a couple of months to properly market the property).
