How To Calculate Diminished Value

Your car starts to depreciate once you drive it off the dealership and will continue to lose its value over the years. However, the value significantly drops after an accident, even if you get the vehicle back to its initial condition. That’s what diminished value or diminution of value is.

In this post, we will explain what diminished value is, the types, how to calculate it, and how to file a diminished value claim.

What Is Diminished Value?

When your vehicle is involved in an accident, its value is reduced. If you decide to resell or trade it for another vehicle, your vehicle’s history will show that it has been in an accident. This will reduce the value you will get for your car. The lost value is what is referred to as the diminished value. It is the difference in your car’s value or market price before and after an accident.

Diminished value is, therefore, different from depreciation, a reduction in your car’s value over time. Depending on the circumstances of the accident, you can file a diminished value claim, in which either your insurance company or the insurance company of the driver at fault will pay for your vehicle’s lost value. 

Before filing a diminished value claim, however, it is vital to know the various types of diminished value.

Types Of Diminished Value

Three types of diminished value are inherent, immediate, and repair-related.

Inherent Diminished Value

This is the loss in your vehicle’s value just because it was involved in an accident. Even if it is repaired to a near-perfect condition, your vehicle’s history report will show that it has been in an accident, and this will reduce its market value. For this reason, an inherent diminished value claim is the most commonly filed and accepted type of diminished value claim.

Immediate Diminished Value

Immediate diminished value is the worth of your car immediately after an accident and before it is repaired. Although the court systems use this type, it is rarely used by insurance companies because most cars are repaired after an accident. And depending on the circumstances of the accident, your insurance company may pay for repairs.

Repair-Related Diminished Value

Repair-related diminished value is based on the possibility that your car may not be restored to its original condition. It is due to the use of aftermarket parts rather than genuine or original equipment manufacturer (OEM) parts or low-quality repairs which add up to your vehicle's loss value. Using OEM parts or original equipment manufacturer parts and high-quality repairs helps prevent repair-related diminished value.

How To Calculate Diminished Value

Insurance companies commonly calculate the diminished value using the 17c formula, which State Farm created in the Mabry V State Farm lawsuit in Georgia. It appeared in paragraph 17, section C, hence the name 17c. Here are the steps to calculate the diminished value using the 17c formula.

1. Calculate The Value Of Your Car

The first step is to determine the worth of your car before the accident. You can also use certain websites to calculate the overall value.

2. Apply A 10% Cap To That Value

Insurance companies apply a base loss value of 10% after a vehicle has been in an accident, which is the maximum they will pay for a claim. So you will have to calculate 10% of the value estimated by Kelly Blue Book or NADA.

For instance, if your car is worth $30,000, then calculating 10% will be $30,000 x 10% = $3,000

3. Apply A Damage Multiplier

Here the 10% base value is adjusted to reflect the structural damage done to your car. It is multiplied by a number ranging from 0.00 to 1.00, where 0.00 represents no structural damage, and 1.00 represents severe structural damage. Below is a breakdown of the numbers:

• 1.00 = Severe structural damage
• 0.75 = Major damage to structure and panels
• 0.50 = Moderate damage to structure and panels
• 0.25 = Minor damage to structure and panels
• 0.00 = No structural damage or replaced panels

Supposing a vehicle sustained minor damages in an accident, then using the above example, applying a damage multiplier will be $3,000 x 0.25 = $750.

4. Apply A Mileage Multiplier

Insurance companies will adjust the value again to reflect your car's mileage. This number also ranges from 0.00 to 1.00 where:

• 1.00 = 0 - 19,999 miles
• 0.80 = 20,000 – 39,999 miles
• 0.60 = 40,000 – 59,999 miles
• 0.40 = 60,000 – 79,999 miles
• 0.20 = 80,000 – 99,999 miles
• 0.00 = 100,000 miles or more

So using the above example and supposing your vehicle has 45,000 miles, then applying the mileage multiplier will be $750 x 0.60 = $450

You’ll receive this final amount from the insurance company as the diminished value.

How To File A Diminished Value Claim

Before filing a diminished value claim, you need to consider the condition of your vehicle before the accident and whether or not the accident was your fault. Your claim is denied if your vehicle is too old, has lots of mileage, or has sustained too many structural damages. Also, the company may not pay your claim if the accident was your fault. 

Generally, the best option is to file the claim with the insurer of the driver at fault. Only file the claim with your insurer if the driver at fault is not insured or you are a hit-and-run victim. Lastly, remember that your responsibility is to prove to the insurance company that your vehicle has lots of value.

Below are the steps you can follow to file a diminished value claim:

• Check with the insurance company for their process and requirements for filing the claim.
• Calculate your vehicle’s value using NADA or Kelly Blue Book.
• Prove to the insurer that your vehicle has lost value. Provide photos and documents detailing the accident and the damages that occurred. Getting an appraisal of your vehicle from a third party can also help with your negotiations with the insurance company.
• Fulfill the insurance company’s requirements and conditions.

If everything goes through and depending on the specifics of your claim, you can expect your claim to be settled within one month of filing.

Summary

Calculating diminished value is easier than it may seem. Only a few steps are involved, including finding your vehicle's value, calculating 10% of the value, and applying a damage and mileage multiplier to the 10% value. With the proper steps, you can have your diminished value claim settled within a month of filing your claim.

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