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Plenty of reasons. Here's a few:
  • in case the new phone is lost or stolen
  • in case the new phone is damaged
  • unlock and use when traveling overseas
  • for testing new iOS and app versions

valid reasons, just wondering why
 
Typically pristine. I've been taking to Craigslist or Swappa the last few years and having a mint condition device can fetch a pretty penny.
 
It's in whatever condition it's in after a year. I carry mine naked so it may be mint or have a few scratches. Some years I get lucky and swap it out for a refurb in pristine condition right before the one-year warranty expires.

I have at&t unlock it free of charge after I upgrade to the newer model so the unlock alone fetches more $$$ than the condition the iPhone is in, i.e., you'll get more for a year-old unlocked iPhone in fair condition than a locked one in pristine condition.
 
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