He went with official rankings period. Even against the enemy he was guessing their official rank. Many know that Maki is as good as 2nd Grade, but they all refer to her as 4th grade because that's what her rank officially is.
The point of that scene was to show relatively strength (albeit incorrectly), and to make us think that both Panda and Maki were punching above their weight in their respective fights.
Based on these fights, I'm guessing that you have to be at least S grade to use Domain Expansion properly.