How to Calculate Diminished Value for Your Car After an Accident

diminished value claim car wreck, how to calculate diminished valueIf you've been involved in a car accident, your car will inevitably have some damage that will need to be repaired. Even though the repairs to your car will help your vehicle look and drive better, they will still leave "evidence of repairs."  Unfortunately, the evidence of the repairs will diminish the value of your car if you try to sell it again. This is called "inherent diminished value."

The Law on Diminished Value in Texas

Texas law says that you must disclose any accident history when you sell a car. Usually, car buyers aren't willing to pay full price for a car that's been in a serious accident. The reason for this is that any potential buyer is inevitably going to consider your car of lesser value since they are aware that your vehicle has previously been involved in a collision - even if your car displays no obvious damages.

Other common examples of diminished value in automobiles include repair-related diminished value, where work done by the repair shop was flawed (e.g. color match problems) or claim related diminished value (where an insurance company refused to pay for all necessary repairs).

Getting Your Car Repaired After An Accident   

When You Can Make a Diminished Value Claim

In order to determine the amount of inherent diminished value in your case, you can subtract the value of your vehicle after all repairs are completed from the total value of the vehicle before the crash occurred. Generally, if the car was worth more than $10,000 before the collision and the cost of the repairs was greater than $4,000 you have a good case for a diminished value claim. Remember, however, that the statute of limitations in Texas (the deadline by which you must make a claim) is two years from the date of the accident, just as with personal injury claims.

You can still make a diminished value claim even in situations where the at-fault driver is not insured, provided that you carry uninsured motorist coverage. A good lawyer will be able to help you identify any existing insurance which you can make a claim against.

If your car is a lease vehicle, you should consult with your lease company to discuss the matter with them. In some cases they will pursue a diminished value case on your behalf, but in most cases it will be up to you to do so. If the latter is the case, you must obtain a written authorization before you can begin your claim.

How Gap Insurance Works   

How to Calculate Diminished Value that is Fair for Your Car

Most auto insurance companies will have their own formula they use to determine the “fair value” of a wrecked motor vehicle. Unfortunately for you, most of these are geared towards paying you less than you actually deserve. The truth is that any time a worksheet or pre-determined formula is used to assess the total dollar amount of a loss, it's going to be insufficient since every case is different.

Fortunately, under Texas law any such formula is not acceptable on its own merits – it is only acceptable if you deem it acceptable, which you have absolutely no obligation to do. In order to determine an accurate diminished value for your wrecked car, you must take into consideration every relevant factor, including: 

  • Damage that the vehicle sustained
  • Cost of vehicle repairs
  • Quality of repairs that were made
  • Cost of comparable vehicles in pre-crash state
  • Past market trends
  • Future market trends

17c Diminished Value Calculation Formula: Unfair Appraisals 

Fraction Valuations of Totaled Vehicles

The 17c Formula is by definition a fraction or calculated value formula which simplifies things enormously in order to come up with an easy figure. Another example of a fraction or value formula is the depreciation calculator used by the IRS when evaluating the value of business vehicles. The 17c Formula specifically considers the following components when assigning a value to your loss:

  • Base loss in value
  • Mileage modifier
  • Damage modifier

Don't Use a 17c

One of the most common worksheets used under different guises by many of the major auto insurance companies is the 17c Formula. This formula was developed as part of a 2001 class action lawsuit that settled in the Georgia Supreme Court. Part of the ruling involved using a generic formula to determine the amount of compensation paid to each of the plaintiffs in the case. The formula was included in paragraph 17, section “c” of the ruling, which is where Formula 17c gets its name from.

However, 17c should not be applied to any property damage claim outside of that specific lawsuit. The Georgia Insurance commissioner has repeatedly stated that 17c is not a legal or final determination of Diminished Value or Total Loss. Despite this, many insurance companies throughout the US (including Texas) continue to cite it as precedent. 

17c is erroneous it can be easily defeated. 

Texas Insurance: Collision Coverage and Comprehensive Coverage

Why You Shouldn't Sign a Release Until You're Ready

The insurance adjuster might try to get you to sign a release to settle your claim, but don't do this too quickly. Once you sign the release, your case is over. You can't make any more claims related to the accident and you're stuck with the money they give you. 

If you aren't sure whether the money the insurance company has offered you is fair, you might consider consulting an attorney. You should know that it's against the law for insurance companies to pressure you to sign a release or to delay the payment of a claim to pressure you. 

Making a Diminished Value Claim When the At-Fault Driver Doesn't Have Insurance

You can still make a diminished value claim even in situations where the at-fault driver is not insured, provided that you carry uninsured motorist coverage. 
 
If your car is a lease, you should consult with your lease company to discuss the matter with them. In some cases they will pursue a diminished value case on your behalf, but in most cases it will be up to you to do so.

Learn More About Uninsured Motorist Coverage

Totaled Your Car Before It Was Paid Off? 

After you're in a serious wreck, the first question that needs to be answered is who's at fault? Whoever caused the wreck will also be responsible for paying for the damages and injuries the wreck caused - and really, their insurance will be responsible for paying. 

(If you aren't sure who caused the wreck, you should start here with my article on how to determine fault). 

So, if you're at-fault for the wreck (or if your car was the only vehicle involved), you'll start your claim using your own auto insurance. Contact them right away so they can begin to determine the fair market value for your car and the costs of repair. If someone else caused the accident, you'll get their insurance information and file a claim using their provider instead. 

The Adjuster First Suggests the Fair Market Value

No matter which insurance company you're using, your adjuster will look at the fair market value for your car, which is what it was worth before the accident (taking depreciation and mileage into consideration). They'll also look at the estimated costs of repairs. If the cost to repair your car is greater than the market value, it's not worth it to fix it and it's considered a "total loss" or "totaled." 

At this point, the insurance company should give you an offer for compensation. They'll tell you how much money they're willing to give you for your totaled car. You should know that this value IS negotiable.   

If you're still making payments on your loan, it's possible that you owe more than what the insurance company is willing to pay you for your wrecked car. That means you'll still be making payments on a car you can't drive. 

Calculating the Fair Value of Your Totaled Vehicle

When it comes to choosing fair dollar amount for your totaled car, you should not rely on the insurance company. They will often compare your vehicle to other similar vehicles currently listed for sale. The problem is that many times the "comparable vehicles" they look at are not actually comparable (for example, the model year or mileage of your totaled car might be very different from that of a vehicle of the same make/model being used for comparison).

In order to determine an accurate diminished value for your wrecked car, consider the following:

  • Damage the vehicle sustained
  • Cost of vehicle repairs
  • Quality of the repairs that were made
  • Cost of comparable vehicles in pre-crash state
  • Past market trends
  • Future market trends

Remember, the fair market value is negotiable. If you're unhappy with what they're offering you for your car, you can negotiate. 

Can You Choose If Your Car Is a Total Loss?

Total loss is declared at the insurance company's discretion. However, just as with a regular diminished value claim, doing your research and coming prepared will enable you to be sure of the true market value of your car, and will help protect you against any unfair offers the insurance company might make. 

Look on websites such as Kelley Blue Books to get a good idea of what a fair market price might be for your car. If the insurance company comes back with a really low offer - for example, if they offer you $18,000 on a car you believe is worth $25,000 - then it might well be prudent to invest in an independent auto appraisal to determine a fair and accurate cash value for your car. This might be particularly useful if your car has customer features or is a specialty model. 

Disputing the Insurance Company’s Valuation of Your Totaled Vehicle

If Another Driver Caused The Wreck

If your car wreck was caused by another driver and you are making a claim against their insurance, then your claim is based on the rules of "tort law." Depending on the disputed valuation, you may decide to make a small court claim against them in order to recover the fair amount you actually deserve. 

In order to do this, you will need to hire an independent certified appraiser to assess your vehicle and prepare an official certified report. 

If YOU Caused the Wreck

If you're making a claim against your own insurance, then your property damage claim is based on your auto insurance policy contract.

Many times, this contract affords you the opportunity to dispute any inaccurate evaluation by involving the “appraisal” or “umpire clause.” You can have an independent professional appraise the damage to your vehicle and ascertain the true fair value owed to you. However, most insurance contracts require the cost for hiring such a professional to be shared between the insurance company and yourself.

Do You Have Gap Insurance? 

Gap insurance is coverage that will pay the difference between what the insurance company is offering you for your totaled car and what you actually owe on it. 

If you do not have gap insurance at the time of your accident AND the other driver was at fault for the wreck, you can file a “third party” claim with the other driver's insurance company. The most you can recover is the market value of your car.

If you were at fault for the accident and you don't have gap insurance, then you will have to either convince the insurance company to pay you more for your wrecked car or you'll be responsible for the "gap," or difference.  

Gap Insurance Explained

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The Anderson Law Firm understands how frustrating having a damaged vehicle can be. From not knowing how it can be repaired to waiting for the insurance adjuster, the process can potentially cause a strain to everyday life. Call us today for more information regarding your injury claim and property damage.

Mark A. Anderson
Board Certified Personal Injury Lawyer in Fort Worth, Texas