Your car is worth less after a crash, even after it has been repaired. A diminished value claim pays you the difference between what your car was worth before the accident and what it's worth now. But you can only make a diminished value claim in certain states and if you didn't cause the accident.
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What is diminished value?
Diminished value, or diminution of value, is the difference in market price for a vehicle before and after an accident. Even a car that has quality repairs with original manufacturer’s parts will have a lower value than before the accident.
Cars are worth less after being repaired because there's no guarantee the replacement parts are the same quality as the original parts. An accident can also cause structural damage that doesn't surface until months or years later.
Diminished value is different from depreciation, which refers to a drop in value over time. You can't make a claim for a car that has depreciated in value.
For example, say you’re selling your used car that was involved in an accident for $20,000. A buyer is willing to purchase your car until they learn that the car was in an accident, and then the buyer lowers their offer to $16,000.
The diminished value of your car is $4,000. In other words, your car is worth $4,000 less because it was involved an accident.
When to file a diminished value claim
You should file a diminished value claim when you’re in a car accident where the other driver is at fault.
Most insurance policies don't allow you to file a diminished value claim against your own insurance company, which means you can't make a diminished value claim for your own car if you caused the crash.
You should make a diminished value claim as soon as possible, ideally in the days following the accident. Most states have statutes of limitations on property claims of a few years, but it's easier to provide supporting documents for your claim soon after the accident. It's also easier to provide an estimated market value for your car during the claims process because the value will drop over time.
How to make a diminished value claim
To file a diminished value claim, contact the at-fault driver’s insurance company. This is known as filing a third-party claim. An appraisal from a third party can help your negotiations with the insurance company.
Every insurance company has its own process for diminished value claims. Be prepared to go to small claims court if the insurance company of the at-fault party refuses to acknowledge your diminished value claim.
States where you can make a diminished value claim
Every state has its own laws regarding diminished value, and you can contact your state’s department of insurance about laws in your state.
- New Mexico
- New York
- South Carolina
How to calculate diminished value
Most car insurance companies in the United States calculate diminished value using a formula called 17c. The name is derived from a Georgia court case that established the concept. While there isn’t a diminished value calculator that's applicable in every instance, insurers typically use the 17c formula or a modified version of it.
Below are the steps to calculate your vehicle’s diminished value estimate:
Step One: Check your car’s value. Use the National Automobile Dealers Association’s (NADA) website to get an appraisal for your vehicle’s value. To get an accurate value, the website lets you input specific information about your vehicle.
Features that determine how much your car is worth
- Wheel type
Step Two: Calculate the base loss of value. Insurance companies commonly apply a 10% cap, also known as the base loss of value, to the sales value estimated by NADA. This simply means that the maximum amount for diminished value claims is 10% of the NADA appraisal.
Step Three: Apply a damage multiplier. Insurance companies use a damage multiplier to adjust the base loss of value. In other words, the cap established above is multiplied by a number ranging from 0.00 to 1.00. This results in an adjusted figure for diminished value based on the insurer’s determination of damage. The multiplier begins at 0.00 for cars with no structural damage or replaced panels, and can go as high as 1.00 for cars with severe structural damage.
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
Step Four: Apply a mileage multiplier. The mileage multiplier functions like the damage multiplier. The mileage multiplier reduces the—now adjusted—base loss of value depending on how many miles the vehicle has on its odometer. An older car’s value will generally be lower than a newer car. The adjusted base loss of value from step three is multiplied by the appropriate mileage multiplier to arrive at the diminished value.
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
Example of a diminished value calculation
First, go to NADA’s website to get a sales value. Say the NADA value for your vehicle is $20,000. Calculate the base loss of value by using a 10% cap. Simply multiply $20,000 by 10%. The result is $2,000, which represents the highest amount a car insurer will pay for a diminished value claim under formula 17c.
Insurance companies use damage and mileage multipliers to adjust the base loss of value. Assume the insurer determines "major damage to structure and panels". Multiply the $2,000 figure by 0.75 to get an adjusted base loss of $1,500.
Finally, apply a mileage multiplier based on your car’s mileage. If the vehicle had an odometer reading of 62,000 miles, the damage multiplier would be 0.40. Multiply 0.40 by $1,500 to determine the final diminished value of $600.
For this $20,000 car, the diminished value after an accident would be $600.
Formula: Value of Vehicle x 10% Cap x Damage Multiplier x Mileage Multiplier = Diminished Value
Step One: Check your car’s value. $20,000
Step Two: Calculate the base loss of value. $20,000 x 10% = $2,000
Step Three: Apply a damage multiplier. $2,000 x 0.75 = $1,500
Step Four: Apply a mileage multiplier. $1,500 x 0.40 = $600
Final Diminished Value $600
How does a diminished value appraisal work?
The key to negotiating a higher diminished value is to get appraisals and inspections by reputable third parties.
While insurers commonly use the 17c formula to calculate a vehicle’s diminished value, it has many flaws that could result in lower diminished value appraisals than a car’s actual worth. The fair market value of a car depends on the features of the car itself, but can also depends on where you live.
The 10% cap on the base loss of value is arbitrary. It was simply the precedent set under the original use of the 17c formula. Under the 17c formula, the amount of mileage on a car impacts the diminished value twice, once under NADA’s market value and again when assessing the mileage multiplier.
Use websites other than NADA to supplement your vehicle’s fair market value. Websites such as Kelley Blue Book can present different results than NADA.
And use a third party to get a physical inspection of the damage to your vehicle, which can help you negotiate under step three of the 17c formula.