GrapheneOS’s location services have a similar issue, but 100x worse. There, apps can definitely have lat/long, but not full Google location service, and all sorts of proprietary software ends up with no/wrong location dots on their maps.
Open source apps, and Google maps competitors work well, so I know it isn’t a hardware or radio issue.
It’s a failure both on the app and Apple side to convey this information properly. Approximate location should be shown with a large circle and the user could be told explicitly about this.
Some apps really need exact location (think Uber and Google Maps) but many don’t (any social network)