Yesterday I posted the first part of this series on diminished value, explaining diminished value and the types of diminished value. Today’s post will deal with how to evaluate your diminished value claim. Recovering diminished value claims is informational warfare with the insurer to prove that you: (1) lost value on your car; (2) what amount you have lost; and (3) that the insurance companies owes you the lost value. Let’s dispense with the third issue right now.
To recover on a diminished value claim you must have a claim against a third party. That means the damage your vehicle sustained had to be the fault of somebody else. If you cause the damage then Texas does not give you the right to recover for diminished value. The Texas Department of Insurance has stated that position is the “official” position in Texas. No Texas court, as of yet, has overruled TDI’s interpretation.
Proving you have diminished value
The first step in recovering for a diminished value claim is proving lost value that the insurance company must restore. You must determine what types of diminished value claims you may have. Under diminished value laws, there are several types of diminished value claims.
It is reasonable to presume some amount of inherent diminished value by the accident appearing on your vehicle’s record. The key exception where that may not be the case is if your car already had cosmetic and/or mechanical defects before the accident and the post-accident repairs fixed some of those defects or added enough improved value to make the car more valuable in a sale than the value without the repairs. Understand that this exception is extremely rare. Most cars with existing damage or old and worn will end up totaled by the insurance company.
Records from the repair shop
After your car is repaired you should make sure your receipts for the work include detailed information including what work was performed, what work was advised by the mechanic but not performed at the request of the insurance company, what parts were installed and whether they were aftermarket or OEM parts. The use of aftermarket parts or not performing every service the mechanic wanted to perform is not absolute evidence of lost value; but you need this information to assess potential claims.
Once you have this information it is time to start gathering valuations on the vehicle.
Key issues when evaluating diminished value claims
Diminished value claims are all about evaluating the market value of your vehicle. That means you need to find sale prices on cars just like yours but without the accident history and any repair issues related to the accident. It is very well known that diminished value claims are easiest when a car starts off in great condition before the accident and when the car is new. New cars tend to carry higher resale value so the lost value is usually much greater as a percentage of the resale value of the same car without the accident than with older cars. Older cars often have higher mileage, cosmetic wear and slight mechanical problems.
Buyers of older cars generally care less than the car has some minor cosmetic damage or an accident history as long as it drives well. The fact that the car has had new parts put on it may actually make it more desirable. However, new versus old is not the only key issue in valuing your claim.
Make and model matters
The make and model of the car is a key issue. Luxury vehicles tend to retain higher value and the buyers tend to investigate the vehicle and make highly informed decisions, so any imperfections or accident history can have substantial diminished value. Luxury cars also tend to obtain OEM parts during repairs so any aftermarket parts used may also drive down value. On moderate and low-end vehicles the use of aftermarket parts has less significance so the diminished value will be less.
Condition of the car
The mileage and other conditions of your vehicle will also play a role. If your car has very high mileage you should not expect to receive very much diminished value on your claim because high mileage vehicles tend to sell for very little. Any prior repairs on the vehicle using aftermarket parts will weaken your claim that these new aftermarket parts have hurt your vehicle’s market value. If your car has a lot of cosmetic wear that can also reduce your claim.
The nature of the damage is also really important. Cosmetic damage to a bumper is easily fixed without any lasting effect on the performance or appearance of the car, unlike damage to the body or mechanical components.
Location
Location is also really important. Cars in a major city will sell for more than cars in a rural city or a suburb. A luxury vehicle will sell for less in a median income neighborhood and an older vehicle will sell for less in a wealthy neighborhood. Make sure all valuations you obtain and that the insurer uses take into account where you live. Try to use dealerships and sale values specific to your neighborhood or city.
There is no exact science to valuing diminished value claims. The best way to obtain a diminished value valuation is to take it to a company that specializes in valuing these claims. They maintain records of prior car sales to determine what your car would normally sell for in your area. They also have expertise in valuing cosmetic and mechanical defects after accident-related repairs. And they will give you the most accurate numbers. However, you can take other steps without paying an expert to build a case for diminished value.
Evaluating repair-related diminished value claims
Repair-related diminished value claims typically relate to the use of aftermarket parts instead of OEM parts. Most people will not be able to look at a car and determine whether OEM parts were used (and may not care either way) unless there is a cosmetic issue. The potential buyer that would most likely care whether OEM parts are used is a car dealership. The use of aftermarket parts can affect their ability to resell the car, such as classifying it as a certified vehicle. The use of aftermarket parts will affect the value of a car that is newer. It is less surprising to see aftermarket parts used on older vehicles which already are likely to have low trade-in value.
Older cars are almost never given a higher value by the dealer as a certified vehicle. It is also important to note that minor aftermarket parts, like light bulb or seals, may be indistinguishable and have little or no affect on the value of the vehicle. To evaluate these claims, it is very effective to take the car to a local dealership of its manufacturer and ask them to give you a trade-in value for the car. Make sure you disclose that it was recently in an accident and show them the repairs and aftermarket parts. The dealership is most likely to deduct from the trade-in value for aftermarket parts. They will likely give you an estimate that shows the most lost value.
Types of repair-related claims
Repair-related diminished value claims may also relate to repairs performed as best as possible but cosmetic or mechanical defects remain. These can include cosmetic defects like paint tape lines or mismatched colors. They can also include mechanical problems, like structural damage or vibrating at high speeds. In these cases you do not claim that the repairs were improper, just that the best job done could not give the car back the same performance or appearance it had before the accident.
It’s like if you go in to the hospital for a leg amputation. Even with perfect surgery you still lose your leg and require assistance walking. That’s not the hospital’s fault but it’s still your condition. With these claims, it is often easiest to take it to a local dealership and ask for a trade-in quote.
Evaluating claims-related diminished value claims
These claims are a little more tricky. Here you value what could have restored full value to the car. You argue instead that proper repairs occurred but did not restore the car to the same quality that it had pre-accident because the insurance company declined to approve all the necessary work. These days insurance companies will pay for all reasonable repair work to avoid claims that the repairs were defective (which is different from diminished value) but they may decline to pay for OEM parts the mechanic wanted to use and instead only agree to pay for aftermarket parts.
In that case you have a duplicate issue with the repair-related claim for use of aftermarket parts. In that case you can handle the claim the same as the repair-related version of the same diminished value. You won’t recover the diminished value twice. Sometimes you will find insurance companies that try to approve payment for the least repairs possible. For example, they may agree to pay to repair the damaged portion of the car but not use the quality of paint the mechanic believes is necessary or to apply the number of coats the car should have. As a result the car may look the same today but down the road you may have issues.
Evaluate these claims the same as repair-related claims. Take the vehicle to a dealership or two and disclose repairs and ask for a trade-in value. You may find the dealership does not discount the value of your car, especially if it is an older vehicle.
Evaluating inherent diminished value claims
These claims are the most common form of diminished value claims. Here, you are arguing that there is nothing wrong with the car except for lost resale value. To prove the inherent diminished value you need to find several price quotes and prior sales in your area.
You can get price quotes on your car at dealerships and carmax. Carmax likes to give quotes without pressuring you into buying so it’s a popular place to get a reasonable quote. You can also look on use car sales websites like autotrader.com, cars.com and even ebay. The more local sales you can show with higher sale prices, the easier to show lost value.
Trade in quotes will always be lower than private party sale prices; but it is easier to start a negotiation from the most advantageous number and negotiate in. Keep in mind that trade-ins are a major avenue that people use to sell their cars; so they are within the actual price range in the market. When you get the quote you can ask if they will ballpark what they would have offered without the car accident. That difference will give you an idea of how much you should expect from the insurance company.
In tomorrow’s post I will discuss how to assemble and submit your diminished value claim.
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