If you are the only offer, and you meet all the terms and full asking price of the seller, I would say no, they cannot raise the asking price, and you could seek a lawyer to make them perform. Just as if a Realtor brings a ready, willing and able buyer and the seller doesn't accept the offer, a Realtor may sue for their commission.
On the other hand, if you are asking for any kind of concessions such as asking them to pay any closing costs, etc., yes they may raise the price so they net what they originally intended. The problem with that in this market is the house must still appraise for the purchase price and may not appraise for a higher price.
Also, if they have another offer they are interested in, they could counter both offers with their terms and take whichever one meets what they are asking for.
The practice of asking a low asking price to get in offers and then arbitrarily raising the price, I would consider to be unethical. If a seller gives the price and terms he/she is willing to sell for, they should honor that contract.
Just remember, if they start out messing with you and there is already a lack of trust, they will more than likely mess with you all through escrow, and it may not be worth the frustration, etc.
Good luck in your hunt for a new home. - Thu Nov 24, 2011