The extra amount the estate agent by bidding up the price per sale is miniscule but the impact / reputation the seller will pass onto others indicating that the estate agent gets a good price.
Reduce perhaps, but not eliminate. My anecdote of the Sherry Fitz agent in South Dublin who had multiple sales fall through at the last minute despite having solicitors letters confirming funds were in place suggests it's not fool-proof. It's also easy to fake financial documents and the agents have no means of verifying them.
In reality though, I suspect some element of those pulling out of sales at the last minute is down to a change of mind due to cold feet, finding somewhere better, or realising they got caught up in a bidding war and offered more than they should. With most purchasers' solicitors insisting on the 'subject to finance' clause, it's the logical card to pull if you want to exit for any reason. It's highly unlikely that a vendor would seek to prove you actually had the funds and so should not be able to rely on that clause.
Perhaps a non-refundable deposit on going sale-agreed would focus people's minds.