Offer #1 = $255K, contingent on the buyer financing 80% of the purchase price, and no home inspection

Offer #2 = $250K with an escalation clause to increase $1K above all other offers up to $270K, contingent on the buyer financing 97% of the purchase price and contingent on a home inspection and contingent on the property appraising at/above the contract price

I suspect you may see where I'm going with this.

In this situation, why would a seller pick offer #2, just for a sales price that is $1K higher, to then voluntarily be subjecting themselves to possible further negotiations related to the home inspection, the appraised value, and with a buyer who would appear to be less financially qualified (3% down payment instead of 20% down payment) than the first buyer?

Most sellers would likely pick Offer #1 in this more nuanced scenario.

So -- extrapolating from this specific "what if" -- if your offer will include contingencies or terms that are bound to be less favorable to the seller, you may want to consider being willing to pay a higher price compared to other offers.

Here's how that might look...

Now, the seller has an offer of $255K and an offer of $260K.  The higher offer still has more contingencies to work through -- but perhaps they are more willing to do so given that the sales price would be $5K higher in this scenario instead of just $1K higher.

So, as you consider that "differential" that you put in your escalation clause -- consider the other terms and contingencies you are including and how they might compare to other competing offers -- and consider adjust that differential accordingly.