Re: "Can somebody explain why this is a real-world problem for normal people?"
Which why folks rely on 'experts', in much the same way you go to mechanics, doctors, accountants etc. In this case, they go to appraisers.
Of course, that relies on appraisers being something called 'honest', which doesn't generally appear when economists speak (because they also don't know how to pronounce 'fraud').
For example, a petition by 11,000 appraisers (collected from 2000-2007) was being collected and finally submitted during this 'mysterious' bubble period. See this in 2001:
Essentially, honest appraisers were being pressured by lenders (not buyers) to inflate prices. If they didn't, they were black listed - you can see an example here:
Of course, lenders/banks denied this. Any attempt to stop it was stymied. Any attempt by a US state (I think it was Virginia - one of those around there) to institute their controls on predatory lending was overruled (Bush, after being lobbied by banks etc.) and so the bubble went on.
This was not rocket science to stop. But the gravy train was paying off big time for loan officers and the C-suiters. When the Greenspan (Chairman of the Federal Reserve), a big believer that there is no such thing as 'fraud' failed to do enforcement (aka, regulation), being of the Chicago School of economics where fraud is sorted out by the market, things turned out as expect.
Of course, Greenspan after the GFC was 'shocked, shocked, that there is gambling in this establishment', but by then it was all over bar the shouting. See here http://business.time.com/2008/10/23/alan_greenspan_changes_his_min/.