In my own (limited) experience, the owner (would-be seller) usually absorbs the cost of the flight. If the prospective purchaser decides not to buy the airplane, the normal courtesy is to make some reasonable contribution towards the cost of the flight.
I suppose that an aircraft seller could attempt to negotiate the costs of a demonstration flight before it occurs, but this would be off-putting for many potential purchasers, and in the grand scheme of things the expense involved is so small that it's probably not worth it ... there is usually not a long queue of people hoping to buy an individual airplane.
people going around trying to get free flying by pretending to be prospective buyers
Never having sold an airplane, I don't know whether this is a common problem; but I suspect not. Frankly, it isn't difficult to get aircraft owners (including those who have no desire to sell) to take you up for a familiarization flight, simply by asking; you just have to be polite, friendly, and show a sincere interest. I have approached complete strangers, who have been happy to accomodate my request for a flight (btw, this sometimes leads to new friendships). More often than not, they don't want to be paid anything (although one should certainly offer). In short, there's no need for elaborate pretence.
I'd not buy an aeroplane if I'd not had a decent chance to handle the controls and decide if I was happy with it or not
I agree. Unless you have significant prior experience on the type, take offs and landings are usually out; but if you are thinking of buying the airplane, you should expect to be permitted to do most of the other flying, including steep turns, sideslips, slow flight and stalls.