Unless if it was intended for dowsing rod to point you in the wrong direction this is broken.
After spam building a well one tile in front of me i found a spot where i can build a well and planted some flags with the survey land tool.
Then tested the dowsing rod a bit away from the flags.
I thought maybe on the other side.
or maybe if go closer. first i thought that green spot in front of me is a indication
but sadly its just the slope of the surface.
Alas even if i get it to fall on the spot there is no indication of water here.
Hope i help to fix something