Whether you’re in an accident or a tree limb falls on your car, you may need to make a repair-related insurance claim at some point. Even after your vehicle is fixed, though, it’s probably not worth as much as it was before.
That’s what’s known as diminished value, and it affects your vehicle’s resale value. We’ll tell you what you can do to recoup this loss if you’re in an accident that isn’t your fault.
Understanding diminished value
Diminished value is the difference in how much your car is worth prior to an accident vs. after repairs are completed.
While this is not something you’d likely think about prior to a car accident, diminished value makes sense from a market perspective. After all, if you’re a potential buyer comparing two identical cars that are for sale for the same price, but one vehicle was repaired following a serious accident and the other has never been in a crash, which would you pick?
The never-been-wrecked vehicle, after all, is closer to new and less likely to have residual issues from a crash. It may even seem safer.
If you’re involved in an accident but aren’t the at-fault driver, it can feel unfair that your vehicle is now worth less. Thankfully, you can often work with the insurance company to determine a fair depreciation amount and even receive a settlement for this lost value.
Types of diminished value
There are two primary types of diminished value to understand: inherent and repair-based.
Inherent diminished value is the drop in the perceived value of a vehicle simply because of its involvement in an accident, compared to a non-wrecked version of the same car. Accidents are reported on your vehicle’s Carfax history, so they’re almost guaranteed to reduce the car’s market value.
Repair-based diminished value occurs when your vehicle cannot be perfectly repaired and restored to its original condition following an accident. This may be due to available parts or even the repair shop’s choice to use after-market parts to repair the vehicle. Even without a change in functionality, these lower-quality repairs or parts will depress your vehicle’s market value.
Diminished value factors
There are many different factors that go into calculating your car’s value and, in turn, its diminution in value after an accident.
How major repairs will impact your vehicle’s market value depends on its:
Make and model
Age
Mileage
Accident history
If you drive an older car with high mileage that has already depreciated quite a bit, an accident won’t drop the value as much as it would a brand new vehicle with low miles. (In fact, in some cases, an older vehicle might actually gain value due to the new replacement parts.)
Filing a diminished value claim
Dealing with your car’s diminished value won’t be the first step in your claims process. First, you’ll need to work with the at-fault insurance company to get your vehicle repaired after the accident. This involves filing a claim promptly, complying with all requests from the insurance company’s adjuster and meeting any deadlines for documentation and information.
After repairs are completed, you’ll work with the at-fault driver’s insurance company to come to a settlement for your vehicle’s diminished value using what’s known as the 17c formula. If the at-fault driver is uninsured, you will need uninsured motorist coverage to be able to make a diminished value claim with your own insurance company.
Starting with the car’s market value from sources like Kelley Blue Book (KBB) and NADA, in most cases insurers then apply a 10% cap, also known as base loss of value.
It’s important to note that most providers exclude diminished value reimbursem*nt for at-fault parties. So if you were responsible for a wreck, you are unlikely to get a diminished value settlement even though your vehicle may be worth less after repairs.
Bear in mind that states have different statutes of limitations on filing diminished value claims. They vary state to state but are commonly between two and six years.
How to calculate diminished value
As mentioned, the maximum amount of a diminished value settlement is usually 10% of the vehicle’s post-repair fair market value. To determine how much of that 10% you’ll actually be offered, though, carriers often use a multiplier scale.
This damage multiplier takes into account the severity of your vehicle’s damage; for example, repairs for severe structural damage have a multiplier of 1.00, meaning that you could get up to the full 10% of your car’s value. Major damage carries a 0.75 multiplier, moderate damage is .50. And if you had only minor damage to the structure or panels, your multiplier could be just 0.25 – capping your reimbursem*nt at 2.5% of the car’s value.
After that, your car insurance company will apply a mileage multiplier. The more miles your vehicle had at the time of the accident, the less value it holds and, more than likely, the less time it will continue to be roadworthy. So, to the number reached above, your carrier will multiply another number between 0.00 and 1.00, based on whether your car had 0-19,999 miles, 20,000-39,999 and so on up to 100,000.
There are other ways an auto insurance company may calculate your diminished value payout offer, depending on where you live and even the policy you hold. Some of these are:
Conducting market comparisons between your vehicle post-accident and comparable vehicles with no accident history.
Calculating the Kelley Blue Book or NADA value of your vehicle pre- and post-accident.
Working with a professional appraiser to determine how much value your car has lost since being repaired.
You, or your carrier, may consult with auto experts to better assess the diminished value. It’s also important to note that guidelines and regulations surrounding diminished value vary by state.
Negotiating a diminished value claim
Depending on the complexity of your case, you may choose to hire a lawyer to help navigate negotiations around the diminished value of your vehicle and your settlement.
Pros and cons of hiring a lawyer
Attorneys are well-versed in negotiating with insurance companies to get the best possible settlement. If you’re already working with an attorney for a personal injury or property damage claim, they may also be able to help with your diminished value claim.
But be aware that many car accident attorneys charge a fee on contingency (meaning, if you win) that’s equal to one-third of your recovered damages. Even if they are willing to charge a flat rate for their services, you may not recover enough extra (on top of whatever the carrier is already offering) to warrant the attorney’s fee.
Negotiating on your own
If you decide to negotiate your diminished value claim on your own, being well-prepared is your best offense.
Put together as much documentation and evidence as you can to support your claim. This may include calculations, specific market examples, and any other valuations or appraisals you’re able to gather. Once you have a fair and adequate number in mind, you can submit everything at once to the carrier and wait for their response.
Best case scenario? They agree with your valuation and offer a settlement of the same amount. But that’s unlikely.
Instead, you’ll probably be asked for additional information or to submit to further vehicle inspections and evaluations. The insurance company may make you a counteroffer that’s lower than your initial request. It’s up to you to come back with another counter, or choose to accept the settlement.
If your repair-based or inherent diminished value claim is disputed or you cannot come to an agreement on the settlement amount, most states allow you to request mediation or arbitration through a third party. If working with an attorney, you can also opt to take the case to trial.
Wrecking your car can be inconvenient and costly, even if you’re not at fault. Once your car has been repaired, you may still be surprised to learn that you are not “made whole,” as your vehicle is now worth less. Filing a claim for the diminished value of your car is one way to get compensation from an at-fault party’s insurance policy and ensure that you are limiting your losses for an accident you didn’t cause.
