Automobile Diminished Value

What is Automobile Diminished Value?

Diminished Value is what happens when an Automobile is damaged. There are two kinds of value loss in an accident: collision and inherent.

Collision Value Loss is the actual value of the repairs required to return your car to its original undamaged state. This is the dollar figure most insurance companies quickly offer to settle your claim. Consumers understand it, and it's somewhat cut and dried. See Total Loss below, and Repairs below for more information on the "game".

Inherent Value Loss is the loss of value to the car because it has been in an accident. In the simplest terms... You've had an accident. Carfax and Autocheck will find out about that accident and tag your car's VIN with the black letter of "Accident Damage". At some future date, you decide to sell your perfectly repaired car and the dealer says "It would ordinarily be worth $10K, but it's showing up as having a major repair. We can't sell a car like that on our lot, so it'll go to auction. So, it's worth $5K instead of $10K." You've just lost $5K, even though the car looks as good as new. That's loss of inherent value. The dollar loss of inherent value diminishes over time. At the time of the accident, it will be greatest. If you keep the car another 10 years, it would be unlikely to be measurable.

When you had your car repaired, the insurance company didn't mention it would be worth less than if it had never been damaged, did they? Of course not. The official line is that "a perfect repair will yield no loss in value". However, there is no such thing as a perfect repair, and, even if there was, Carfax and Autocheck make it impossible to hide the fact that it has been repaired. Your car WILL lose value in any accident that is reported, no matter how minor.

Insurance companies have fought paying diminished inherent value across the country. Georgia requires insurance companies to pay it. Most other states do not. Georgia actually had a formula, called rule 17c, which set forth a way for insurance companies to calculate the loss of inherent value. However, after an outcry from consumers, it was determined that the formula came from a small insurance company, and had no actual statistical data that backed it. Georgia recinded the formula. Now, insurance companies paying diminished values in Georgia must use either a "measured value" (an estimate from an expert) or an "estimated value" (an estimate done on a statistical model). In true insurance company fashion, they rely upon using estimated values, which are generally lower. If pay for your own adjuster, you can get a measured value, which, by state law in Georgia, overrides the estimated value. Only by the insurance company paying for their own measured value will they be able to overcome your measured value.

How much value will your car lose because it's in an accident? For some high-line luxury cars and sports cars, even a minor accident could lower the inherent value over 50%. Yes, 50%! Who would purchase a reconstructed Porsche or Bentley? No one! On the other hand, older vehicles of negligable value would lose virtually nothing due to an accident. For your common, less than five year old Toyota, of which there are hundreds just like it for sale every day, you can expect a loss of inherent value between 10% and 40%, depending upon how many body panels are involved.

When should you ask for Diminished Inherent Value? Immediately upon contacting the insurance company! You want them to consider the lost inherent value in the calculation as to whether the car is to be totalled or not. You do NOT want them to repair the car and then tell you that there is no loss of value because the repair is "perfect" or that the diminished inherent value will be limited because, by paying you the full amount of the lost inherent value on top of the already paid repair bill, they will be paying more than the book value of the car. Negociate hard up front, especially if the cost of repair of the car is likely to exceed 50% of the book value of the car.

Will you get paid for the Diminished Inherent Value? You will probably be paid Dimished Inherent Value if:

You will probably NOT get paid Diminished Inherent Value if:

Total Loss
State laws set forth a guideline value, over which your car is considered a "total loss" or "totalled". For example, in the State of Pennsylvania, a car is considered a total loss if the cost of the repairs exceed 80% of the book value of the car. In the State of Florida, it's 75%. Most insurance companies establish the book value of the car by using auction prices, which are generally unavailable to consumers. However, consumers may get a ballpark value of how much their car is worth by using NADA or Edmunds. Generally, the initial "book value" from the insurance company isn't accurate because the insurance company will miss options, get the sub-model of the car wrong, or is using a comparable car found in a used car lot that has previously been in an accident. Using the internet, one may find their own comparable cars and decide if the value placed on their totalled car is reasonable. In my own experience, Allstate has offered amounts that really represent the actual replacement value of the car (in some cases, thousands of dollars over "book value") while State Farm offers impossibly low prices based upon a computer model of estimated values of auction vehicles of unknown quality and condition (and they refused to budge on those prices, even when given numerous examples of "comparable" cars). Other insurance companies will consider your list of comparable vehicles if you consider their initial offer to be too low, and throw out a "compromise" figure to settle the claim.

Some Insurance companies have "preferred repair facilities" who promise to the insurance company to fix any car that comes to them at a discounted rate, or a "required repair facility" where the insurance company makes you take your car for repairs. Generally, the required repair facilities are for simple repairs like glass, not complex body repairs. You have to use them if you want the insurance company to pay for the repair. Preferred repair facilities, in general, should be avoided unless you have previous experience there. Some unscrupulous ones will "low ball" the initial estimate and then pile on charges as the repair is in process (called a "supplement"). This behaviour actually helps the insurance company, because the low initial estimate may prevent some cars that should be totalled from being totalled. For one car, I had estimates ranging from $7K (preferred shop) to $18K (independent appraiser) to $19K (Toyota dealer) for the same damage! On another Toyota, the first independent appraisal came in at $2600, the next independent appraisal at $4400, the next independent appraisal at $6600, and the final bill came in at $7800! Once the repair starts, the insurance companies will insist that it be completed unless the cost of repair so greatly increases that the cost to repair exceeds 100% of the book value of the car. Insurance companies say that they weed out the shops that regularly put out low-ball estimates, but whether they actually are effective at doing so is highly questionable. Beware, also, of the estimator that does the estimate on your car. All states have laws that put forth minimum requirements to be licensed as an auto damage appraiser in that state. When your car is being appraised, get the appraiser's license number. Ask how long he's been an appraiser and when he last worked in a body shop. I've had situations where the appraiser was from another state. I've had situations where the appraiser was writing appraisals on another appraiser's license number and name. I've had situations where the appraiser said "You have to be an engineer to fix these new fangled cars" and later said he hadn't worked in a shop, nor taken a refresher course for 10+ years, all violations of the state licensing rules. I've disqualified two or three appraisers for every one that was accepted. Insurance companies pay for these appraisals, but also know that if you disqualify an appraiser, they're in for a battle, so they'll send another one out. Eventually, you and your shop will get one that's acceptable and you won't have to disqualify him.