I think most hosting providers are comfortable with reseller customers overselling space, that reseller customer will still be locked into their own storage allocation.
If some of the resellers customers start using huge amounts of space that's the resellers problem to deal with, you do get a few like that but most hosting accounts are a few hundred meg, at least according to my own data. A hosting provider cannot make their reseller products attractive without allowing overselling so the reseller can make some good profit.
A $10 reseller account of 50GB could potentially hold hundreds of customers at $5 a month. without overselling profits for the reseller would be tiny. Any one that is looking to buy a reseller account that does not allow this would be better of with a VPS.
There are very few hosting companies that DON'T allow overselling. The vast majority do. I know that was a heated topic among hosts about 5 years ago when everyone was offering unlimited disk space etc. for their packages. The debate still rages on with some people on that one.
The fact is most websites will never use the amount of disk space they pay for, so overselling is the outcome from this.
I don't see why a host would allow this its basically them losing money, since when has losing money become a proper business plan. Unless however they are using it to promote something which promoting overselling its just crazy however if you use something like WHMCS plugins and solusVM it always gives the host the option to allow overselling of resources. When I first started in this hosting industry my host however didn't allow overselling but I can see how it would be effective to give your reselling customer some lead way.
Yes, we offer overselling. There is no issue with it. By a hosting provider offering overselling doesn't mean they overload their servers, rather they allow their customers to use ALLOCATED space rather than ACTUAL usage e.g., it enables customers to create their own custom packages.
To sum up along with my previous comments regarding the majority of legit customers with a WordPress site etc will use a few hundred meg as an average. If a host did not oversell directly or allowing resellers to do so it would result in huge amounts of storage space going unused which is no different than an airline making a flight with only 25% of the seats filled which is why many airlines oversell flights to get maximum profit on the operating expenses of the flight, it's just good business sense.
Overselling is something that can benefit the host and the resellers but must be done responsibly or can quickly get out of control.