I think you highlight the problem with people’s perceptions of this mechanic. Why does the circle have to be small? Why can’t it be huge? I mean, it could literally be the size of a grid square. Who needs more than a grid square? Yet people do spam areas that size. They can even give you the option to make it smaller, if you know you aren’t going to build that big, and don’t mind neighbors. Also, if you don’t like where it is, you can pull it up, and place it in another spot.
The mechanic could work like this. You plant the flag. Then, you go to the map, and you see a circle indicating your territory. You can then make it smaller through the +/- keys. Later, you can make it bigger, if you choose, but only if somebody else does not already own the area that the increase would claim. Being able to pull up the flag, and place it in another location, would allow you to increase the size, while avoiding the other person’s claim.
Also, there can be a lot of feedback on the map. Why not allow you to see the circle when you simply have the flag in hand, ready to be placed. You see the circle. Any part of the circle that is invalid, meaning it is overlapping somebody’s claim, or ghost fence, or no build zones, would show up in the circle as red. By allowing you to actually see what is obstructing you, and what it is, you can move away from that obstruction, or reduce the size of your circle.
Of course, there would need to be a maximum size to the circle, and also a minimum.
This could also be done by clan size, if they wish, but not sure that is really needed.
The point here is that people are already claiming areas that big. And this would solve so many other problems. Like the person who set their horse to guard in an area I want to build, and then never came back. Since the decay for animals and thralls seems to be broken, I may never be able to build there. I have seen thralls from decayed bases that are still around 4 months later.