Diminished value, Diminution in Value, or commonly referred to as "DV" are the terms generally used to describe the economic loss in a property's value as a result of having been damaged. Diminished Value (DV) is often associated with vehicles that have been damaged, however, it is applicable to other property of value including collectibles such as jewelry, artwork, etc. For the purposes herein, reference will involve the loss in value of a damaged automobile where the term is often applied.
Unlike "depreciation", which is an anticipated and predictable loss in value over time, ‘Inherent Diminished Value’ is a loss in value due to a specific, sudden and unexpected negative occurrence. Diminished value of an automobile following an accident may occur in one of three ways (or a combination thereof):
(1) repair-related diminished value;
(2) Immediate diminished value; and
(3) inherent diminished value.
Repair-related diminished value is the loss of value due to the inability to perfectly repair the vehicle, so it is worth less after repairs than it was before the wreck. Immediate Diminished Value – The difference in resale value of a vehicle immediately before damage has occurred and immediately after damage has occurred (prior to repair). As courts are rarely the chosen venue for recovery of property damage, the standard of "Immediate Diminished Value" is rarely employed in resolving Property Damage claims. This also refers to a loss of value caused by the insurer's direct involvement in the claim adjustment in which the insurer exerts control over the repairs and repairs are incomplete, insufficiently performed, or otherwise restore the vehicle to less than the standard condition.
Inherent Diminished Value - Assumes optimal repair quality has been achieved and is defined as the amount by which the resale value of a repaired vehicle has been reduced simply because the subject vehicle now has a significant damage history. This is the most widely recognized and accepted form of Diminished Value. It is also the basis upon which any supplemental form of Diminished Value would be added. A common "Supplemental" form of Diminished Value is "Repair Related Diminished Value".
Usually, a frame or structurally damaged vehicle cannot be re-sold as a "certified pre-owned vehicle."
The true measure of a damaged vehicle's inherent loss in value can be measured as the difference in the value of the vehicle before the loss to that after the loss, prior to or after repair. The standard rule as to establishing a value on late model vehicles would be: 20-25% behind book (Black Book, KBB, NADA) and utilize actual sales results, and not on advertised prices.
While some may claim Diminished Value (DV) 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 damage as they would for one never having been damaged. Retailers often offer discounts for scratches and dents on appliances, electronics and dented canned goods; it is, therefore, reasonable that the value of a damaged motor vehicle will suffer a lessening in value.
Additional factors may be taken into consideration in evaluating the loss in value of a damaged and repaired vehicle and may include, but not be limited to: the vehicle itself (i.e. rare collectible, originality, market desirability etc.), the vehicle’s pre-loss condition, severity of the sustained damages (i.e. frame damage, flood, fire etc.), the subject vehicle’s history (i.e. one owner, prior damage/repair, death of occupants etc.), quality and thoroughness of the performed repairs, (i.e. quality of parts, materials, workmanship, etc.) and additional value considerations including, but not limited to values associated with pre-owned certification programs.etc.
Auto insurance companies may not readily recognize or offer to pay for diminished value. Each state may have differing opinions of DV. Example; The state of Georgia allows the insured party (the first-party Policyholder) to make a claim for their remaining economic loss for DV from their own insurance company while the neighboring state of Florida does not. Most states, however, allow the victim of another's negligence (third-party) to make a DV claim from the at-fault party.
The length of time to collect Diminished Value will vary depending upon each state's statute of limitations for first party (contractual) claims and third-party (restatement of tort) claims.