What is Diminished Value?

Automobiles by definition are depreciating assets, this means that with time an automobile will lose its value. After the first year of ownership, a vehicle's depreciation becomes linear, the value of an automobile will decrease at a steady pace until reaching a plateau (around 10% of the original MSRP).

Obviously, antique, collector or restored vehicles are excluded from this logic.

When involved in a car accident, the substance of a vehicle changes, think of it as a criminal record, a felon is immediately and forever considered different than a non-felon.

Regardless of how well the car is repaired (or how well the rehabilitation was for the felon), the vehicle is now considered in a different category as a non-damaged vehicle.

The depreciation of the vehicle is accelerated by the accident, this acceleration is called Diminished Value.

Let's look at a 2 year old Honda, let's say the vehicle is worth $20,000, based on the residual value guide or depreciation guide, in a year, this vehicle will be worth $17,000 (a drop of 15%).

The vehicle is involved in a major accident, after the repair, an auto appraiser determines the value to be $16,000, Diminished Value is therefor $4,000 or 20% of the pre-accident value. After one year, the normal depreciation factor will apply and the vehicle will be worth $13,600 (the same 15% as before).

The best party qualified to assess an automobile's resale value (or loss thereof) is obviously an auto appraiser, with a car dealer a distant second.

In most cases the insurance carrier will assess the loss in value. Different states have varying laws with respect to diminished Value. The State of Georgia for example allows an insured to collect diminished value against his own policy (1st party claim).

Insurance companies in Georgia use a flawed formula called 17C, this formula applies a percentage to the loss, a percentage is acceptable in the case of normal depreciation, but accidents vary greatly from minor, to moderate, all the way to severe. A one size fits all formula is inaccurate when dealing with diminished Value.

In the case of the 2 year old, $20,000 Honda above, 0.15 is the standard depreciation coefficient for that particular vehicle, a Ford on the other hand might have a coefficient of 0.18% or 0.2%. Each vehicle loses value differently, therefore a single diminished value coefficient for all vehicles is incorrect.

First, it is highly recommended to hire a local appraiser, someone who you can meet face to face or ask to appear as an expert witness in a trial.

Many people find appraisers online, this is fine as long as they are bona fide and legit. Many online appraisers are either scam artists or simply incompetent.

Things to check in an auto appraiser:

• Do they have a professional license (auto appraiser, auto damage appraiser, adjuster etc...)?
• Do they have a published pricing schedule?
• Are they BBB Accredited, if so, how many complaints did they have? A score is not sufficient.
• Can you verify their clients testimonials?
• Will they appear in court as an expert witness?
• Do they offer free estimates?
• Do they have real world automotive experience (car dealer, mechanic, repair shop etc...)
• Have they ever been hired by an insurance company ( the answer needs to be YES, Insurance companies only hire legitimate people)