A Definition of Inherent Automobile Diminished Value
What is diminished value? This newly coined term is most often applied to the reduction in value of a car or truck after collision damages have been repaired. Regardless of how well the repairs were done, used car buyers would rather purchase an automobile with no accident history, thereby making the previously repaired vehicle worth less than its counterpart. The St. Lucie Appraisal Company prepares automobile diminished value reports in all 50 states and, in our experience, we’ve learned that there are wildly varying opinions about what fair compensation consists of. With the advent of vehicle history reports such as Carfax and Autocheck, it is now possible for us to view almost everything that has taken place during a car’s lifetime. The definition of diminished value has taken on an even great significance since car owners began filing diminished value claims against the insurance companies of at-fault drivers. These are known as third-party claims. Insurers are obligated to consider payment of these claims under the property damage portion of their insured’s policy which states that they must restore the victim’s car to its pre-accident value. This includes not only making sure that adequate compensation is provided for quality repairs, it also covers the inherent diminished value that is part and parcel of the car now having a “bad Carfax.” It is seldom an easy task to obtain a fair settlement from insurance companies but our job is to help our clients navigate these treacherous waters. Diminished Value is a relatively recent development in the world of insurance claims so, as far as the State Farms, Geicos, Allstates and Farmers of the world, the less you know about it, the better. It is what we are doing at St. Lucie Appraisal – defining diminished value.
From Wikipedia: While some may claim Diminished Value is subjective and based upon perception or speculation, the old adage “perception becomes reality’ applies and as such Diminution in Value is real simply because, for the most part, no reasonable and prudent person is willing to pay the same price for a vehicle with a history of damages as they would for one never having been damaged. It is therefore reasonable that the value of a damaged motor vehicle will suffer a lessening in value. How much of a vehicle’s value is ultimately lost after repairs are completed? The amount of diminished value varies according to many factors. The year, make, model, mileage, type and severity of repaired damage and even a car’s color can factor in to the equation. Consumers of high-end cars such as Tesla, Mercedes-Benz and Porsche tend to be more discriminating and usually won’t buy a vehicle that was repaired, regardless of how minor the damage was. Diminished Value can result in 50% of the vehicle’s value lost, especially if frame damage or air bag deployment was involved.
Now for the important part of the article – determining how much of your car’s value has been lost as a result of its having been repaired. As you have read, the year, make, model and severity of damage all play a part but the question remains – what methodology best answers the question most definitively? Here are the three most commonly used approaches that are used by independent appraisal companies.
1) The use of formulas or algorithms – An historic ruling by the Georgia Supreme Court addressed this type of approach in its examination of State Farm’s Rule 17-C in which damage “modifiers” are used to arrive at the amount of diminished value. Modifiers include location of damage, whether adjacent panels were affected, mileage, structural damages and the arbitrary and unfair maximum payment of only 10% of a vehicles fair market value. Many insurance companies still use this method even though the court approved it only as an alternative – in the absence of any other verifiable method of measure. So why would an appraiser working on your behalf employ this method, especially knowing in no uncertain terms that the insurer’s formula will conflict with theirs? One answer: Assessing the amount of diminished value by using a formula or algorithm is the quickest way to complete the job. Another answer: Independent appraisal companies using formulas that will result in lower diminished value assessments hope to gain employment from insurance companies which are only too happy to contract their work to vendors that will save them money.
2) The use of automobile auction results – while being a better alternative to the use of formulas and algorithms, insurance companies routinely downgrade these types of appraisals, arguing that they do not address the specifics of the subject vehicle. This much is true. While automobile auction results will list ten previously undamaged 2012 Cadillac Escalades that were sold for X number of dollars next to ten previously repaired 2012 Cadillac Escalades that were sold for Y number of dollars, the vehicle listings often do not show the specifics for the purpose of comparison – the mileage, options, colors or exact damages that were repaired. Again, the answer to the question “Why would an independent appraiser working on your behalf use this inaccurate method?” is that it takes just a few minutes to compile this type of diminished value report.
3) The most time-consuming and difficult methodology for determining the true amount of diminished value is also the best – obtaining quotes from at least six area new car dealers – the ones who actually take these bad Carfax vehicles in trade. Very few – if any other – independent appraisers use this method simply because completing the report can literally take hours. Many consumers have painted automobile dealers as the bad guys because of the lower prices they offer for previously repaired cars. In reality, it isn’t the dealer, nor is it the insurance company or the appraisers that set the market for these cars, it is the used car buying public. People won’t pay nearly as much for an automobile that had structural damage, therefore, the dealers are forced to pay less for them. The vast majority of new car dealers will affirm the fact that every previously frame-damaged car they take in trade goes straight to the auto auction and they are lucky if they break even on them. Car companies can’t certify them and many banks won’t finance them. The St. Lucie Appraisal Company takes the time to acquire six verifiable quotes from new car dealers. The advantage for our customers is that quotes are based on information specific to their automobiles. In addition, since the dealers are informed that the subject vehicles are not available for purchase or trade, insurance companies cannot object to this method based on the dealer’s having any vested interest in presenting biased quotes.
Do not be surprised if insurance companies offer you only a few hundred dollars in compensation for diminished value. Some even have the temerity to offer nothing at all. A recent case in which we provided expert testimony resulted in Safeco Insurance Company, who had, in fact, offered absolutely nothing to our client, having to pay the full diminished value amount, our appraisal fee, our expert witness fee and our client’s attorney’s fee. On top of what Safeco had to pay it’s own experts and legal defense team, it was a hard lesson learned by the insurer. As more and more magistrates and mediators become familiar with diminished value, claimant’s will eventually have an easier time obtaining fair settlements. For our part, all we can do is provide the fairest, most comprehensive and easy to understand diminished value appraisals in the business. Even if it takes a little longer.
The fee for an Automobile Diminished Value Report is $275.00. You may also make your Credit Card Payment by telephone, call 772-359-4300
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