How liquidation inventory condition and grading actually work

Why there is no universal grading system

No outside body sets liquidation grades. Retailers, manufacturers, liquidation marketplaces and wholesale buyers each describe condition in the way that fits their own products, their own returns process and their own customers. Some use named conditions. Some use numbered tiers with measured limits. Some use letters.

That isn't a flaw waiting to be fixed. It is how the market works. Your job is to read each system on its own terms instead of translating it into the last one you used.

Same industry, different grading systems

Here are three real systems from the same business, all from the Registix Grading Guide Book: an appliance condition guide, one appliance program's tier guide, and the letter grades one store uses for tools, outdoor power equipment and mowers. They sit side by side so you can see how differently they work, not so you can convert one into another. There is no conversion.

Look at what changes from column to column. The Registix appliance guide describes conditions in words, with no measurements. The OEM program measures: it limits the size and count of dents and scratches per side, and it describes a warranty on one tier only. CLT's letters, used for tools, outdoor power equipment and mowers, separate whether an item is new or used from whether it is complete, and they tell minor missing parts or accessories (grade B) apart from major missing parts such as batteries, attachments or core pieces (grade D).

Scratch & Dent appears in two of these systems, with different definitions. Salvage appears in two, with different wording. Same words, different inventory. That is the lesson.

Notice what each system pays attention to. The two appliance systems center on cosmetic damage, measured or described, and on whether the unit works. The tools, outdoor power equipment and mower system doesn't mention cosmetic damage at all. It centers on completeness and function, because a drill without its battery or a mower missing a core piece is a different product to a buyer. The category changes the grading logic. That is why you can't line these systems up against each other.

The callout under the columns makes the same point from another angle. One manufacturer can run more than one program on different terms. One may carry a warranty, another may be sold as-is with no warranty and no claims. The program sets the terms, not the brand.

A fourth example: a marketplace's condition list

Liquidation marketplaces publish their own condition terms too. B-Stock's auction marketplace for Lowe's liquidation, for example, publishes a product condition list with New, Like New, Scratch & Dent Appliances, Refurbished, Used - Good, Used, Used - Fair, Salvage and Mixed. Read their definitions on the source page, linked under Sources below, rather than any summary of them, this one included.

A few things stand out when you read it. There are three different used conditions, and only one of them is described as sellable without repair. Refurbished is described as repaired to full function, which is a different promise from tested. Mixed is described as able to include any condition, salvage included, unless the manifest or the auction details say otherwise. And packaging condition is listed separately from product condition, so a damaged box and a damaged product are two different facts.

Two cautions. A condition list shows the terms a marketplace can use, not what any one load contains. Each auction listing states its own condition, as the marketplace's appliance listings do. And those are that marketplace's definitions. They don't define the terms in the systems above, and those don't define them.

Condition terms you will see, in common usage

These are the words you will meet most often. The descriptions are how the terms are commonly used, not definitions anyone has to follow. For any real purchase, the program's own written definition wins.

• New: generally never sold or used. Ask whether an opened, damaged or missing box still counts as new. In the systems above, the Registix guide allows packaging opened for inspection or display, and CLT's grade A includes new out of box.
• Like new: generally unused or barely handled. One of the vaguest terms in the market, so ask what separates it from new.
• Open box: the package has been opened. That alone doesn't say whether the item was used, tested or complete.
• Overstock: excess inventory the seller couldn't sell at full price. It describes why goods left retail more than their condition, though it is usually new.
• Scratch and dent: generally cosmetic damage on items expected to work. How much damage, where, and whether function is confirmed or warrantied depends on the program.
• Customer returns: items a customer bought and brought back. It describes where an item has been more than its state. A return can be unopened or broken.
• Refurbished: generally repaired or restored to working order. In the Registix appliance guide it means professionally repaired, tested and fully functional. Ask whether the program you're buying from means the same, who did the work and whether anything stands behind it.
• Tested: someone checked something. What test, by whom and what it proved are the real questions.
• Untested: nobody has confirmed whether it works. Price it that way.
• Used: shows signs of use. Whether it works and whether it needs repair vary by program.
• Salvage: generally heavy damage, missing parts or not working, often sold for parts or repair. Definitions differ a lot.
• As-is: a term of the sale, not a condition. It describes what the seller will and won't stand behind.
• Cosmetic damage: affects how an item looks, not whether it works. Where it is matters: a dent on a hidden side panel and one on a front door are not the same to a customer.
• Functional damage: affects whether or how an item works. It changes the work, the risk and the channel, not just the price.

See also: Open box vs customer return, Tested vs untested liquidation inventory, What does salvage mean in liquidation?, What does as-is mean when buying liquidation? and Customer returns vs overstock vs scratch and dent.

Why grading changes by category

A grading system built for refrigerators doesn't fit a cordless drill, and one built for drills doesn't fit a mower. What makes an item sellable, and what it costs to make it sellable, is different in each category. The lists below are examples of what can matter economically. They are not a standard, and no program is assumed to check every one.

Appliances. Condition can turn on:

• Cosmetic damage, and where it is
• Whether it works: cooling, heating, washing
• Signs of installation or use
• Missing shelves, handles, racks, power cords or hoses
• Cosmetic panels
• Structural damage
• Whether it can be repaired, and whether parts are available

Tools. Don't grade a drill like a refrigerator. Condition can turn on:

• Whether it works
• Tool-only or kit
• Batteries, chargers and cases, included or not
• Accessories and other components
• Packaging
• Signs of use and cosmetic wear
• Completeness overall

Outdoor power equipment. Different again. Condition can turn on:

• Whether it works
• Whether it is assembled
• Missing components
• Cosmetic condition and signs of use
• Engine or motor condition, where it has one
• Batteries and chargers, where it uses them
• What repair it needs

These lists are factors that may matter, not grades, and Blueprint doesn't publish a grading standard for tools or outdoor power equipment. CLT Wholesale's A to E grades in the module above are one real example: one operator's system for tools, outdoor power equipment and mowers, not a Registix or industry standard. If a program grades those categories, ask for its written definitions like any other.

A condition label is not a warranty

A condition label describes the expected state of the goods. It doesn't, by itself, tell you what the seller will stand behind. Scratch and dent, open box, customer return, salvage, tested, untested, Grade B: none of them automatically tells you what warranty, functional guarantee, inspection right or claims right comes with the goods. Those come from the program and the terms of the sale.

The OEM program in the module shows this clearly. Its Tier 1 carries a 12-month functional warranty, and Tiers 2 and 3 carry no warranty. Same program, same kind of product, different promise. And the same manufacturer can sell other inventory through a different program entirely, as-is with no warranty and no claims, even when the goods are new. New does not mean warrantied, and a grade name does not tell you the terms.

Before you buy, get these answers in writing: Is there a warranty, and who honors it? Can I inspect before or on delivery? What is the claims window? Is there a variance policy if the load differs from its description?

See also: What does as-is mean when buying liquidation?.

Condition is not the manifest

A manifestManifest A manifest is the supplier's list of what is on the load, typically model, quantity, condition and a retail reference value. tells you how much information you have about a load. Condition describes the expected state of the goods. They answer different questions.

A detailed manifest can accurately describe difficult inventory: every line itemized, every unit a return in unknown working order. An unmanifested load can be full of resellable goods. Don't teach yourself that manifested means good and unmanifested means bad. Read what the manifest says about condition, then read the program's definition of each condition code on it.

See also: Manifested vs unmanifested liquidation and How to read a truckload manifest.

Condition is not product mix

Two loads can share a condition and have little else in common. A truckload of scratch and dent appliances might be mostly laundry or mostly ranges, mostly current models or mostly older ones, mostly brands your customers ask for or mostly ones they don't. The condition label is the same. The value to you is not.

Mix also hides inside category words. A program that contains tools isn't necessarily a tool program. Category presence is not category concentration. That lesson has its own guide.

See also: Understand the program, not just the headline.

How condition affects the economics

Condition changes almost every cost after the purchase. Worse or less certain condition generally means more testing, more repair, more parts, more disposal, fewer customers who will take it and a longer time to sell. Price reflects risk: inventory with more condition uncertainty, less information, repair needs or missing components shouldn't be valued like clean retail merchandise.

That's why there is no honest universal answer to what a grade is worth as a share of retail. The same grade is worth more to a business that can test and repair in-house, sells to customers who accept cosmetic damage and turns inventory quickly than to a business that can't.

Time belongs in the math. Inventory doesn't improve with age. A higher recovery that takes a year can be worth less to you than a lower one that turns back into cash in weeks, because the faster one frees working capitalWorking capital Working capital is the money available to run day-to-day operations: current assets minus current liabilities. to buy again. Track it with inventory turnInventory turn Inventory turn is how many times you sell through your average inventory in a period, COGS divided by average inventory value. and inventory agingInventory aging Aging groups your unsold inventory by how long it has been in the building, typically 0–30, 31–60, 61–90 and 90+ days..

See also: How much to pay for liquidation inventory and Why some buyers make money on liquidation and others don't.

Questions to ask before you buy

Use this list on every new source and every new program, including a new program from a seller you already know.