How Is Diminished Value Calculated (And Who Is Eligible To File)?
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Summary:
If you’ve been in a car accident, the value of your car will go down even if you make all the necessary repairs to bring your vehicle back to its original condition. To file a diminished value claim with the auto insurer and recover the loss of your car’s value, you’ll need to know the 17c diminished value formula used to calculate diminished value.
It is a widely known fact that new cars lose about 10% of their market value the moment they are driven off the dealership’s lot. They can lose up to 20% of their value in the first year alone, and they continue to depreciate over time with regular use. Yet depreciation is not the only way your car can lose its resale value: an auto accident can also reduce your vehicle’s worth, even if you make all the necessary repairs to return it to its original condition. This is known as diminished value.
Unfortunately, the diminished value ends up adding to the costs associated with a car accident — including repair costs, loss of income due to missing work, and even personal injury — and it can be frustrating for car owners, especially when it’s possible to restore the vehicle to its pre-accident condition. Fortunately, you may still be able to recover the lost value of your car via a diminished value claim.
Read on to learn more about diminished value claims, including the types of claims, the requirements for filing a claim, and the formula used for diminished value calculation.
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Types of diminished value claims
There are three types of diminished value claims: inherent, repair-related, and immediate. Here’s a brief overview of how each one works:
Inherent diminished value claim
Inherent diminished value refers to the value a car inherently loses simply by having an accident history. Even if you make all the necessary repairs to restore the vehicle, having a history of damage will reduce the car’s market value. Inherent diminished value claims are the most common type.
Repair-related diminished value claim
In contrast to inherent diminished value, which assumes that repairs were of the highest quality and used genuine or original equipment manufacturer parts, repair-related diminished value refers to the loss in value of a vehicle due to subpar repairs. Only using original parts and making high-quality repairs after an accident may help prevent an even greater diminished value.
Immediate diminished value claim
Immediate diminished value refers to the difference in resale value immediately after an accident and before any repairs have been made to the vehicle. Since most insurance companies will typically cover the cost of approved repairs after an accident, this type of diminished value is rarely used when filing claims with an auto insurance company. Instead, it is most commonly used by court systems.
Who is eligible to file a diminished value claim?
Not everyone who has been in a car accident can file a diminished value claim, and each insurance company has its own requirements and conditions. In order to qualify for a diminished value reimbursement, you and your vehicle need to meet the following requirements:
- Fault for the accident: You cannot be the at-fault driver in the auto accident. If you were the one to cause the accident, you generally won’t be able to file a diminished value claim with your own auto insurance company. If the other driver was the at-fault party, you may be able to file this type of claim with their insurance company to make up for your car’s diminished value.
- Ownership: You must own the car that was in the accident. Normally, you cannot file a claim on a leased vehicle.
- Age of the vehicle: Your car cannot be too old and must not have too many miles. If your vehicle is less than 10 years old with no previous accident history, you may qualify to file a diminished value claim.
- No rebuilt or salvage title: Your car cannot have a rebuilt or salvage title.
- Insurance: If the at-fault driver was not insured, or you were a victim of a hit-and-run, you may be able to file a claim with your own insurance company if you have full coverage, including uninsured motorist property damage coverage.
- Loss of value: You must be able to prove that your car lost value as a result of the accident. Photos, an appraisal, and other documentation may be necessary (be sure to check your specific insurance company’s requirements).
- State laws: Your state must allow diminished value claims. Rules related to diminished value claims vary by state — for example, in Georgia, you can file a claim no matter who was at fault, while most other states require the other driver to be at fault.
Pro Tip
“Know your state’s diminished value laws. In some states, diminished value claims are not recognized or have strict eligibility requirements. Claims are approved around 25% of the time on average, and the approval rate varies by state. Some states like Georgia mandate insurers to pay diminished value claims, while others, like California, make it more difficult.” – Rikin Shah, personal lines insurance agent
How is diminished value calculated?
If you are eligible to file a diminished value claim against the at-fault driver’s insurance, you’ll need to know how to calculate your vehicle’s diminished value. State Farm created what is known as the 17c diminished value formula, and car insurance companies commonly use this formula for calculating diminished value.
The 17c diminished value formula consists of four steps:
- Calculate the sales value of the vehicle.
- Multiply that value by 10%.
- Apply a damage multiplier based on the level of damage.
- Apply a mileage multiplier based on the vehicle’s mileage.
1. Calculate the sales value of your car
The fair market value of your vehicle can be determined by consulting the NADA or Kelley Blue Book websites. For example, if you’re using Kelley Blue Book — which helps car owners determine the value of their car based on the market price of comparable vehicles — you simply need to input either your vehicle’s VIN; its year, make, model, and mileage; or its license plate number. You’ll also need to have an idea of the extent of the damage from the accident in order to accurately estimate the current (i.e., post-accident) value of your car.
2. Apply a 10% cap to the car’s value
The maximum amount auto insurers will pay out on your claim is 10% of the car’s value, so the next step is to multiply the calculated value of your car by .10 (10%) to determine the base loss of value.
3. Apply the damage multiplier
Using the damage multiplier below, multiply the value calculated in step 2 by the number corresponding to the level of damage, which will be a number ranging from 0.00 to 1.00. Levels of damage include severe structural damage, major damage to structure and panels, moderate damage to structure and panels, minor damage to structure and panels, and no structural damage/cosmetic damage only.
| Level of damage to the vehicle | Damage multiplier |
|---|---|
| Severe structural damage | 1 |
| Major damage to structure and panels | 0.75 |
| Moderate damage to structure and panels | 0.5 |
| Minor damage to structure and panels | 0.25 |
| No structural damage (cosmetic only) | 0 |
4. Apply the mileage multiplier
Although your car’s mileage has already been used to determine the market value of your car, many insurance companies apply their own mileage multiplier. Multiply the adjusted value from step 3 by the applicable number below.
| Vehicle’s current mileage | Mileage multiplier |
|---|---|
| 0 to 19,999 miles | 1 |
| 20,000 to 39,999 miles | 0.8 |
| 40,000 to 59,999 miles | 0.6 |
| 60,000 to 79,999 miles | 0.4 |
| 80,000 to 99,999 miles | 0.2 |
| Over 100,000 miles | 0 |
Example of final diminished value
Let’s consider a scenario in which your car was involved in an accident and suffered major damage to its structure and panels. Here’s how you would calculate the diminished value of the vehicle:
- Step 1: Imagine the vehicle’s mileage is 75,000, and its sales value is determined to be $18,000.
- Step 2: $18,000 (fair market value of your vehicle) x 0.1 (10% cap) = $1,800
- Step 3: $1,800 x 0.75 (major damage) = $1,350
- Step 4: $1,350 x 0.4 (75,000 miles) = $540
In this case, even though the insurance company’s maximum payout is $1,800, after calculating your vehicle’s diminished value using the 17c formula, you can expect the insurance company to pay you about $540 when you file a diminished value claim.
Tips for filing a diminished value claim
We reached out to a number of experts for their insight on filing a diminished value claim. These are some of the best tips they had to share.
Rikin Shah, a personal lines insurance agent, offered the following pro tips for filing a diminished value claim:
- Submit a claim to the at-fault driver’s insurance company with evidence of diminished value.
- Approval rates are low (insurers reject over 70% of first-time claims), but persistence improves the odds. Appeal rejections and negotiate a settlement. Hiring a professional diminished value appraiser increases the approval rate.
- Evidence is crucial. Insurers often reject diminished value claims due to a lack of supporting evidence from the claimant. Providing repair invoices, photos, professional appraisals, comparable sales data, and other documentation helps make a strong case. Claims with solid evidence have two to three times higher success rates.
George Arkin, a car expert and owner of Nexus Auto Transport, recommends that you keep track of any additional repairs required due to hidden damage discovered during the repair process.
Vikram Rathod, marketing manager at Nexus Auto Transport, gave the following advice:
- The success of your claim relies on your ability to demonstrate the value difference. This includes pre-accident valuations, detailed photographs, repair bills, and third-party assessments.
- Find real-world sales figures or listings for vehicles identical to yours, both with and without accident histories. This provides a tangible benchmark for your claim.
Need help paying for your car’s repairs after an accident? Check out SuperMoney’s picks for the best personal loans for car repair!
FAQs on diminished value
What is diminished value?
Diminished value refers to the loss in a car’s resale value after an auto accident, even if all necessary repairs have been made to return it to its original condition.
How do new cars lose value?
New cars typically lose about 10% of their market value as soon as they are driven off the dealership’s lot. They can depreciate up to 20% in the first year and continue to depreciate over time with regular use.
What are the types of diminished value claims?
There are three types: inherent diminished value, repair-related diminished value, and immediate diminished value.
Can I file a diminished value claim if I was at fault in the accident?
Generally, if you were the at-fault driver in the accident, you won’t be eligible to file a diminished value claim with your own auto insurance company.
How is diminished value calculated by insurance companies?
Insurance companies often use the 17c diminished value formula which involves: calculating the sales value of the vehicle, applying a 10% cap to the car’s value, using a damage multiplier, and applying a mileage multiplier.
Is my leased vehicle eligible for a diminished value claim?
Typically, you cannot file a diminished value claim on a leased vehicle.
How can I improve my chances of a successful diminished value claim?
Providing solid evidence like repair invoices, photos, professional appraisals, and comparable sales data can significantly improve your chances. It’s also beneficial to be persistent, appeal rejections, and potentially hire a professional diminished value appraiser.
Do all states in the US recognize diminished value claims?
No, rules related to diminished value claims vary by state. Some states, like Georgia, mandate insurers to pay diminished value claims, while others, like California, make it more challenging.
Can I claim diminished value if the at-fault driver was not insured?
If the at-fault driver was not insured, or you were a victim of a hit-and-run, you may be able to file a claim with your own insurance company if you have full coverage, including uninsured motorist property damage coverage.
Where can I determine the fair market value of my vehicle?
You can consult platforms like NADA or Kelley Blue Book to determine the fair market value of your vehicle.
Key Takeaways
- After an accident, the value of your car will go down even if you make all the repairs to bring your vehicle back to its original condition. However, you may be able to recover the lost value of your car via a diminished value claim.
- To file a diminished value claim with an insurance company and recover the loss of your car’s value, it’s worth knowing the 17c formula used by insurance companies to calculate diminished value.
- The 17c diminished value formula consists of four steps: (1) calculate the sales value of your vehicle, (2) apply a 10% cap to the car’s value, (3) apply a damage multiplier, and (4) apply a mileage multiplier.
- Although approval rates are low, your diminished value claim will have more weight if you provide thorough and detailed documentation.
Whether you can file a diminished value claim in your state or not, you’ll always want the best coverage possible for your vehicle so you can drive with peace of mind. Looking for a car insurance policy with better terms? Use SuperMoney’s comparison tool to find the best auto insurance policy for your needs!
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