So the glass is epoxy bonded to the digitizer and the LCD display. Because of this, there can be no water penetration to give a watermark like that on a laptop screen. Now that that’s out of the way, the discolouration is a matter of pressure.
As most of the contributors has suggested, this is pressure against the LCD from the back (inside) the phone. If you review the iFixit teardown, the top left of the battery is behind that screen (marked in green). This could be a sign of the battery swelling which will cause the battery to not function in the long term and the “bubbling” or swelling will continue across the entire battery.
The iPhone 7 series are sealed phones with an IP rating of 67, which means they are water resistant up to 1m. *IF* you able to, I recommend you get the battery replaced at an apple store with an authentic battery because Apple will seal the unit correctly. This way, any issues, the next person can take it back to Apple.
If you take it to a third party, they can replace it and may do a great job but since you are selling it, if the new buyer has an issue with the battery or takes it into an Apple store, they will be refused service.
I recommend you inform the buyer about the POTENTIAL issue (or repair yourself) as I am doing a BEST GUESS based on the evidence seen. There could have been a drop or something else causing that pressure internally.
This is not a cosmetic issue as it shouldn’t be under any pressure behind the screen. Treat this as an undiagnosed issue that may grow into something bigger IMO.
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