It's a rough estimate, but it is not always lower. A place near me was listed for $625k below the Zestimate, and is selling for 725k below the Zestimate (which was $2.4M). A below market rate sale in your area, such as a foreclosure auction, can drive automated price estimates down. A transfer of ownership to a trust, which can be at an old sale price or even zero dollar, is tough to discern in the metadata of some localities and will drive the $/sqft down.

Given the many wild overestimates, I don't suspect that they are trying to have their model dampen price estimates to drive referrals. However, the price estimates at Redfin seem much more accurate, so their model could use some work.