I’m not an attorney and I don’t know what state you are in or the laws. So this is not legal advice, just my opinion.
Can they set the reserve price higher than the market value? YES, they can set it anyway they want.
How hard is to finance the property from Auction? Most auction terms specify cash sale and a non refundable deposit that is required before you can bid. So there is a lot of risk here. Be sure to carefully read the auction terms to find out if financing is even possible.
How can you do or request on site DD? Again, read the terms. If DD is not addressed in the terms/rules you might be able to negotiate something. Most auctions allow a viewing date before the sale, but that is just for a basic walk through inspection.
If it’s a property you are really interested in you might try making a regular offer ahead of the auction and see if you can get it under contract with a normal purchase agreement that would give you DD period and other protections. Many auction companies will also sell the property on normal terms before or after the sale. In the end, they just want a commission and a sale is a sale.
That’s my two cents!