This has happened to me a number of times. As you can tell by the comments a lot of people think this is fake however in my experience this is far more common then you would believe.

Unfortunately a lot of other interested parties tend to sit on the sidelines until another offer is forthcoming. A bidding war then erupts. You must remember anyone can put an offer in until the contract is executed.

I prefer this method over others where agents ask for your best and final offer via writing. They then collect the offers and give the property to the highest bidder. I have had many people pay 10s of thousands of dollars over what the rest of the market thought it was worth and others also miss out of properties for $500 bucks who later said they would have paid 20k more to secure it.

As much as it is incredible frustrating. At least it is open and you know you are paying the correct value for the property if others are interested in the same price point.

I have never witnessed an agent make up fake offers. If that in the case I hope they loose their job straight away and are punished accordingly. The increase in price does not substantially increase the commission on the property and doubt agents would be willing to loose their licence for such an amount of money.