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Understanding Automotive Diminished Value Calculations, Part One

25th June 2019

If your car has been damaged in an accident, the “repaired” annotation in its history can drop its value should you ever decide to sell or refinance it. This reduction in worth is known as the vehicle’s “Diminished Value.” 

Understanding Diminished Value

Imagine that you have a new, $30,000 car and you get into an accident. It isn’t your fault, so the other driver’s insurance company pays to have your car repaired. You would think that your car is still worth $30,000 because it looks good as new and drives like new. However, this isn’t the case. If you were to sell the car, you might get considerably less for it, maybe $25,000, once the buyer or dealership finds out that the car had been in an accident. The differential, or $5,000 figure, is the diminished value of your car.

Determining the Diminished Value

So how do you calculate this diminised value? We asked Plantation Ford (Plantation, FL) for advice. This is what we were told. First, different entities calculate diminished value differently. Buyers of used vehicles, for example, calculate diminished value objectively. This means that they offer an estimated diminished value for the vehicle that they believe to be fair, given the vehicle’s history. This will always be lower than the value for a similar car without an accident history. This value may vary widely between buyers.

Insurance companies, on the other hand, use a very exact formula for calculating diminished value. This calculation is known as “17c” and has been adopted by many US-based insurance companies. The 17c estimate methodology, by limiting the loss to an arbitrary percentage, generally favors the insurance company.

State Laws

Every state has different diminished value laws on the books. For example, some states allow for claims to be made against a driver’s own insurer, others only against another driver’s insurer, and others don’t recognize diminished value laws at all. They also may differ in exactly how a vehicle’s Diminished Value should be calculated. You should be able to find your state’s specific diminished value laws online to get a better idea of your rights.

Diminished Value Claims

If you’ve been in an accident that was the fault of another driver, you may be able to file a diminished value claim against their insurer. Again, this will depend on your state’s specific laws. If you are in an accident, contact the other driver’s insurance company and inquire about a diminished value claim. If they resist or the amount is not as much as you think you deserve, there are many lawyers that specialize in diminished value claims. Note that most states only allow a diminished value claim to be filed within three years of an accident.

 

Corey is an all round tech guru who has worked at some major blue chip companies. He started Poweronemedia to share his views and knowledge with the rest of the blogging world.