Diminished Value

Diminished Value:

Anyone knows that the value of a vehicle would drop substantially if it were wrecked, right?  How about the same vehicle that was wrecked and then professionally repaired and painted?  The answer is still YES, and in the automotive and insurance world it is called diminished value.  

When a vehicle has been damaged, merely returning the vehicle to its prior appearance and function does not return the vehicle to its pre-loss condition.  Issues regarding the vehicle’s warranty arise, which may include having the warranty restricted or even voided.  State and Federal laws may require disclosure of damage and repair.  Vehicle histories are easy to track, and an adverse history can cost thousands of dollars to a vehicle owner.  So merely properly repairing the vehicle can never return it to what it once was.  Damage to a vehicle’s pedigree is like stamping “Damaged Goods” across a vehicle’s title.

Lets put this into the consumer’s prospective; you are in the market for a specific vehicle, you find two of the exact same model you are interested in, one shows up with accident history, you will either pick the vehicle that has no damage or offer a lower amount for the diminished value vehicle.

This sounds pretty straightforward, but underneath this statement appears an imposing stance by most all major insurance companies.  The insurance companies make sure that when they pay to repair a damaged vehicle that there are no more additional claims of damages for the vehicle, in other words, think twice before you sign the dotted line and take delivery of your vehicle.

At Eldridge Appraisals Inc. we take our assignments on diminished value very seriously.  We gather all the facts and try to determine the success of a claim.  Dealing with insurance companies today, you must have professionally prepared documents that adhere to the requirements of presenting a diminished value claim.  Eldridge Appraisals Inc. has the resources and experience to provide the help you need to resolve these difficult situations.

The 3 Types of Diminished Value:

   1. Inherent Diminished Value – The automatic loss in vehicle market value from an accident.  Almost every damaged vehicle will have some measure of inherent diminished value, which is still an actual loss to the vehicle owner.

   2  Repair Related Diminished Value – A loss in market value due to remaining flaws and defects caused by improper or substandard repairs.  Repairs in this category have been paid per the repair estimate, but have been repaired  improperly or perhaps overlooked completely.

   3. Insurance Related Diminished Value – A loss in vehicle market value due to insurance claims practices.  This is typically caused by the insurance carrier failing to pay to repair a flaw or defect listed on the repair estimate. 

Resale (Residual) Value: the effect of significant collision damage on vehicle value:

Since a vehicle, even with quality repairs, is never really quite the same after a collision, a precedent setting lawsuit may force insurance companies to pay on the diminished value of a vehicle after an accident.   A lawsuit in Georgia forced State Farm Insurance to pay on a vehicle’s loss in value (diminished value) after an accident regardless of the quality of repair.  Following the verdict, State Farm, the nations largest insurer, agreed to assess all future claims for diminished value.  This case now forms the basis for dozens of other cases and should set a precedent of recognizing diminished value nationally.  No matter how well a quality repair job is done on a damaged vehicle, it may very well be worth less in resale value than was originally estimated when the lease was written.  That could result in a deficiency that the lessee would have to pay.  Any dealer worth their salt can spot evidence of significant collision repairs and will usually lower their bid price on the vehicle accordingly.  If you have the misfortune to have a vehicle accident, then you will want to keep in mind the possible diminished value of the vehicle when negotiating with your insurance company for repair.  Better yet, call your auto insurance agent and ask whether your policy will cover your vehicle for diminished value in case of an accident.  NOTE: diminished value because of a collision repair will affect the value of a vehicle whether leased or owned, so vehicle owners should have the same concerns as lessees regarding this subject!

Leases include Guaranteed Auto Protection (GAP).  Customers who lease should have no risk should the vehicle suffer a total loss during the lease period, through accident or theft.  Insurance companies pay the actual cash value for total losses and as mentioned above most vehicles have little to no equity during the first 75% of the life of the loan.  That makes you financially responsible for any deficiency balance due.  GAP insurance covers any difference and is paid for by the leasing company.  This same coverage on a conventional loan can increase your monthly loan payment by $6.00 to $12.00 per month.  We all know that a vehicle that has been involved in an accident is worth less than one that has not.  That is referred to as “diminished value.” If you have an accident with a vehicle you have financed conventionally, that diminished value is yours.  With a lease, if it is repaired with new parts to industry standards, it keeps the same residual value and you should not be penalized.  In other words, the diminished value transfers to the leasing company, unless they consider it excessive wear and tear.

These recommendations are intended as guidance only and Eldridge Appraisals Inc. assumes no responsibility for statements made or advice given.