Depends on the kind of sale.  Sometimes short sales are listed lower.  Some agents might be convinced that a low price will start a bidding war.  

I also have found that some sellers have done all the research but want their home to sell during the first weekend or at the first open house, so they price it very low (definitely in the hopes of getting offers above asking price).  These sellers might just have the primary objective of unloading the home quickly rather than risk the expense of it sitting on the market for weeks or months.

I agreed with you but i think there are most out there who still believe helping others is a primary objective. I believe there are five key elements to a successful real estate relationship which are honesty, loyalty, integrity, communication, and hard work. Providing a smooth and stress free deal is also an area to concentrate.

I am searching for a decent house for about three months and my first hand experience is, many of the sellers are greedy due to one of the following reasons:

1. They have a memory of houses selling for 900K 3 years ago.. Why should they sell for 700K. even though 700K is a big number

2. They have added some upgrades, and probably 5-10 years ago and wants 100% of that money back. Which is not reasonable. If you have enjoyed 50% of the lifespan of the upgrades, you should not expect more than 25% of the moneyt back

3. They paid 800K for that house and dont want to pay 100K from their pocket to close at a lower price.

For those who are trying to sell in unreasonable prices, here is what I have to say..

1. Its hard to get approved for more than 750K. Nobody wnats to downpay 150K and buy a home

2. People are getting smarter and not ready to pay through their noses to buy a house when rent can be cheaper.

I dont blame the agent, as theye are on the ground and more realistic.

You completely missed the point. I am talking about houses that's priced significantly lower than CURRENT market price. For e.g., a house in Eastern Market area is recently marketed for middle 600s, but similar sales in the past two months are going for low to mid 800s. After four days on the market, the house received more than 20 offers. 

Of course the houses will sell for more than the listing--but given the low starting point, I doubt it will eventually sell for more than 800s. 

BTW, many houses in good areas of DC are selling for more than 2007 level. 

I wouldn't go for it, but many agents "priced to excite" in the last runup and thought they were helping their clients.  Their thinking is "look, it was done at a time that was great for sellers, so why wouldn't doing it be good for sellers now."

The rationale for why a seller would do it?

To get maximum price, you want to sell your house to the person who will be willing to pay the most for it...and you want to get an amount close to the maximum amount that person would be willing to pay.  So post low price to get everyone "in play" ...and then take contracts all together so the buyers are bidding against each other. 

if you don't get buyers bidding against each other or your targets don't show up...it backfires.

I agree.  Although there may be legitimate reasons for listing properties below market, far too often I see situations that I wouldn't categorize as... honest.

Take the hypothetical example of GreedyListingAgent, UninformedSeller, and HonestAgent:

UninformedSeller's house is sparkling and worth $500k, but GreedyListingAgent convinces him to list the house for $450k. 

An under market listing is a true asset to Greedy Listing Agent.  Greedy Listing Agent knows that the property should sell easily, and quickly, and therefore don't need the help of Honest Agent. 

Let's say Honest Agent calls Greedy Listing Agent and tries to show the house to her client.  Greedy Listing Agent will say: "No thanks, don't show the property, we have plenty of offers"  (Regardless of whether or not those offers exist.) Alternatively, GreedyListingAgent can just ignore phone calls and voice mails.

However, a week later, the house is still active and Honest Agent calls again.  Greedy Listing Agent will say "Nope, it's under contract."

The truth is, Greedy Listing Agent holds all of the cards.  The house will sell very shortly.  In the ideal situation for GreedyListingAgent, he will come across a buyer without an agent and collect both commissions.  So instead of making $15k (3% of an honest sale of $500k), he makes $27k (6% of a dishonest sale of $450k). 

In a secondary scenario for GreedyListingAgent, he will come across his friend, AnotherGreedyAgent, and give the sale to AnotherGreedyAgent.  GreedyListingAgent keeps $13.5k, and AnotherGreedyAgent gets $13.5k.  AnotherGreedyAgent will remember this when he finds his own UninformedSeller.

So GreedyListingAgent has screwed UninformedSeller out of $50k to make an additional $12k.  Why would UninformedSeller allow GreedyListingAgent to do this you ask?  Well, the markets are volatile.  You can make comps and statistics say anything you want.  Maybe UninformedSeller is a little old lady and not tech saavy.   Or, the listing agent has many sales in a neighborhood and has a great sales pitch.  (They won't screw every seller, but when they smell a little bit of market-price-ignorance, they'll pounce.)

If there's a listing agent that seems loathe to let you (whether you're an agent or a buyer) see the house, check the frequency of dual-agency sales of the listing agent's historical transactions.  Sometimes [SOMETIMES!] that can be a giveaway to a dishonest agent.  But even if you determine that this is a dishonest agent, I wouldn't waste my time trying to force my way in to see the house.  The dishonest listing agent can screw you too many ways.  If they have the ear of the seller, and don't want you to buy the house... you won't be buying the house.  [I.e. They can poke holes in your offer and find reasons to accept the other offer. Or, if you have perfect credit and no contingincies, they can tip their preferred buyer to your bid price, and outbid you by $1k, etc., etc, etc) 

I know this isn't really what you asked.  But I just felt like venting.  Best of luck.  Wish more honest agents cared a little more about this.  These aren't rare occurences.