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Diminished Value: What Is It and How to Calculate?

Have you ever wondered how to calculate the diminished value of your car after an accident? If so, you’re not alone. Many people are unaware of the concept of diminished value and how it can affect the resale value of their vehicle. Keep reading to learn more about this important topic.

Is it possible to avoid the diminished value?

It is possible to avoid the diminished value by taking care of your car and keeping it in good condition. You can also avoid it by selling your car privately instead of trading it in at a dealership. Finally, you can try to negotiate with the insurance company if they offer you a low settlement due to diminished value.

diminished value

What Is Diminished Value?

Diminished value is the reduction in the resale value of a vehicle that has been in an accident. This occurs because potential buyers perceive that the vehicle has been damaged and may not be as safe or reliable as a comparable model that hasn’t been in an accident. Diminished value can also refer to the loss in market value of a company’s shares after it announces bad news, such as financial losses or disappointing earnings.

The concept of diminished value exists because personal property (like vehicles) is not always worth its “full” value after it has been damaged. Depreciation must be taken into account when an item is purchased, and the diminished value is the amount by which an item’s value has decreased due to damage.

How to Calculate Diminished Value?

Most insurance firms use a formula known as 17c to compute the value of your vehicle following an accident. This method was first employed in a State Farm claims case in Georgia. Here’s how formula 17c works.

Step 1: Determine the value of your vehicle.

The first step is to figure out how much money your automobile is worth. This is the value that Kelley Blue Book assigns to your vehicle. This is a good place to start, and it will provide you with an estimate based on the make and model of your car, as well as its mileage and extent of the damage. Kelley Blue Book provides a free valuation tool on its website to estimate the value of your vehicle.

Step 2: Apply a 10% maximum value restriction.

To determine the “base loss of value,” take the retail price of the vehicle from step 1 and multiply it by .10. Unfortunately, there is no good reason for this gap, which the insurance business regularly exploits.

Step 3: Apply a damage multiplier.

  • In this stage, you’ll adjust the amount you set in Step 2 to take into account any structural damage to your vehicle. This will be determined by whether essential components need to be replaced or restored, since the insurance coverage covers only what can’t be repaired using a new part. Take the number from step two and multiply it by the following multiplier to get a damage multiplier:
  • 1: 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

Step 4: Your vehicle’s mileage

The insurance company will then reduce the value of your car’s mileage. To calculate the final reduced value of your automobile, multiply the number from Step 3 by itself:

  • 1.0: 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

In this stage, the insurance firm double dips because in the first step, we subtracted the mileage of the vehicle. Based on miles traveled, the diminished value claim is discounted. Furthermore, if you have over 100,000 kilometers on your odometer, your claim will be adjusted to 0%.

Diminished Value Claims:

A diminished value claim is a claim filed with an insurance company to recover the loss in value of a vehicle that has been damaged in an accident. The insurer will usually only pay for the cost of repairs, but not the loss in value of the vehicle. To receive payment for the diminished value, you will need to provide evidence of the pre-accident value of your vehicle and documents showing the repairs that were made.

There are three types of diminished value claims: inherent, repair-related, immediate.

  1. Inherent Diminished Value Claim: An Inherent Diminished Value Claim is a legal term used to describe the situation in which an individual or entity seeks to recover damages for the decreased value of a good or service that has been rendered useless. This type of claim can be brought against anyone who has caused damage to the good, including manufacturers, retailers, and even other consumers.
  2. Repair-Related Diminished Value Claim: Repair-related diminished value claims are those in which the repairs completed on a vehicle result in a reduction in the value of the vehicle. This can happen when repairs are not done properly, or when they use inferior materials that do not match the original quality of the vehicle. In either case, the end result is a lower resale value for the repaired vehicle.
  3. Immediate Diminished Value Claim: This sort of claim refers to the resale value of your car immediately after it has been damaged in an accident before being repaired. Because you’ll almost certainly get your automobile fixed, this kind of claim is rarely utilized.
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