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Car Value in Accident Claims

If you have been in a traffic accident you will want to be certain your car is valued fairly before accepting a payout. This applies to either a repair estimate or a payoff based on the valuation of your vehicle if it is determined to be totaled. 

While it is not necessary for you to hire an attorney to help with these proceedings, dealing with the insurance of the at-fault party and negotiating fair value can be stressful time-consuming tasks. If your accident involved an injury then this becomes even more accurate. An experienced car accident lawyer will be able to help you file a successful claim and negotiate on your behalf for compensation for your vehicle. Contact the legal team at Marks Law Group today for a free, no-obligation case consultation to find out how we can help you.

How Auto Insurance Companies Value Cars

You need to be aware of how insurance companies value cars in order to effectively negotiate. If your vehicle is totaled in an accident you will receive compensation from your insurance company based on what they claim the value of the car to be.

Most people who've gone through this process agree that one of the most frustrating parts is accepting an estimate from their insurer for the value of their vehicle. The majority of the time the estimate comes in significantly less than you expected, and the amount you get isn't nearly enough for a direct one-to-one replacement. In some cases, it may not even be enough to fully pay off what they owe on the vehicle.

An insurance adjuster examining a car after an accident

One factor complicating matters further is the fact that most car buyers aren't familiar with the methodologies used by insurers to determine values for vehicles. In fact, car insurers are typically careful to not reveal the method they use to determine a car's value. It may be hard for consumers to challenge an underpriced deal from a car insurance company because they don't have all the information. 

Being familiar with the basic terms used by insurance companies when valuing vehicles can help you come out ahead during negotiations.

Understanding Car Insurance Claims Valuations

After receiving notice of an insurance claim for damage caused by a car accident, an adjuster from your insurer will typically be sent out to evaluate the damage. First, the adjuster must decide whether to classify the vehicle as totaled or not.

Even if the car can be repaired, the insurance company may declare it to be totaled. Typically, companies decide whether they want will label a vehicle as totaled by looking at the cost of repairs involved and comparing them to the vehicle’s current market value. Repairs that exceed a certain percentage of the vehicle's value will be deemed too expensive and the car will be declared totaled. 

If the vehicle is totaled the adjuster will appraise the vehicle and assign a value to it. Damage sustained in the accident is ignored for the purposes of this appraisal. The insurance adjuster tries to determine what a reasonable cash offer would have been on the vehicle just before the accident took place. 

After their own adjuster evaluates the vehicle, the insurance company hires an independent car appraisal firm to conduct another inspection. This is done so that there isn't an appearance of impropriety and unfairness when valuing the car. When the insurance company makes you an offer, they will consider the values of their own appraisal as well as that of the third-party company.

Be Prepared: What to do After a Car Accident

Actual Cash Value and Replacement Cost

There’s a big difference between the insurance value of your vehicle as set by the insurance company and how much it will cost to replace the vehicle. The insurance company will base their offer on the actual cash value (ACV) of your car, not on the replacement cost. What this means is that they will determine how much you would have reasonably been able to sell your vehicle for before the accident, and set that as the value.

In general, actual cash value means taking into account things like depreciation, wear and tear (including normal use), mechanical problems, cosmetic blemishes, and supply and demand for similar vehicles in your area. Gap insurance can help cover the differences between ACV and the replacement cost of your vehicle but can be an expensive option. Be sure to take your time to compare premiums and prices from different insurance companies to find the best rate if you choose to purchase gap insurance.

Vehicle Depreciation

Even if you bought a brand new car only one year before an accident happened, the value of your vehicle after the accident would be significantly less than what you originally paid for it. If you buy a brand-new vehicle from the dealership, its value drops by about 10% as soon as you leave the lot, and by around 20% by the end of the first year that you own it. For an insurance valuation, you can be certain that the adjuster will factor in everything from the mileage on the vehicle to upholstery stains when determining how much your vehicle is worth. 

In situations like this, the offer you will receive for your vehicle will always be less than it would cost to purchase a new vehicle of the same type. To do a direct one-for-one replacement of your vehicle with a brand new equivalent model you will have to add your own money, otherwise, your next vehicle will be a step down from what you were driving.

Diminished Value

Diminished value, or diminution of value, refers to the loss of value of a vehicle following an accident. Even if your car has received high-quality repairs to restore it to its original condition, complete with fully original manufacturer's parts, it will have a lower value following the accident.

As an example, let's say you are selling a used vehicle that had been involved in an accident for $25,000. You find a buyer willing to pay your asking price, but after they find out the vehicle had previous damage from an accident they drop their offer to $20,000. For this case the diminished value of your vehicle is $5,000, meaning that your vehicle is worth $5,000 less than the car's pre-accident value based solely on its accident history. 

Calculating Diminished Value

In the U.S., auto insurers use a formula known as 17C to calculate an insured vehicle's diminished value following an accident. It was named after a Georgia court case that established the concept. Keep in mind that there is no diminished value calculator that is universally applied, but insurance companies almost always use either 17c or a modification of it when determining the value of a vehicle. 

how diminished value is calculated in car accidents - image

The steps below outline a method for estimating your vehicle's diminished value:

  1. Determine the base value of your vehicle. Get an appraisal of your car using the National Automobile Dealers Association's (NADA) website. You can input specific information regarding your vehicle on this site, which allows you to get a more accurate value. Some of the details that will impact the value of your vehicle include:
    • Year
    • Make
    • Model
    • Condition
    • Mileage
    • Engine 
    • Color
    • Wheel type
  2. Next, calculate the base loss of value from the accident. Most insurance companies will set a 10% cap in place, known as the base loss of value, and apply it to the estimated appraisal from NADA. This means that the maximum amount for a diminished value claim is 10% of the NADA appraisal.
  3. Account for damage using a multiplier. Insurance companies typically use a damage multiplier to adjust the base loss of value. By multiplying the value determined by the 10% cap by a value between 0.00 and 1.00, you get an adjusted figure for the diminished value of your vehicle based on its damage. 0.00 is used for vehicles with no structural damage or replacement panels, while 1.00 will apply to vehicles with severe structural damage. Refer to the guidelines below:
    • 1.00 - Severe structural damage
    • 0.75 - Major damage to structure and body panels
    • 0.50 - Moderate damage to structure and body panels
    • 0.25 - Minor damage to structure and body panels
    • 0.00 - No structural damage or replaced body panels. 
  4. Use a mileage multiplier to account for the mileage of your vehicle. This works in the same way as the damage multiplier, adjusting the base loss value depending on how many miles the vehicle had on its odometer. Older vehicles will typically have a lower valuation than new cars. Refer to the guidelines below for the appropriate mileage multiplier:
    • 1.00 - 0-19,999 miles
    • 0.80 - 20,000-39,999 miles
    • 0.60 - 40,000-59,999 miles
    • 0.40 - 60,000-79,999 miles
    • 0.20 - 80,000-99,999 miles
    • 0.00 - 100,000 miles or more

Accidents can result in a loss of thousands of dollars in the value of your vehicle. Using the 17c industry formula, you can get an approximate diminished value calculation of your own vehicle to determine its value. 

Problems With Diminished Value Appraisal

Insurers typically use the 17C formula to determine a vehicle’s diminished value. However, there are several flaws that could lead to an appraisal that is less than its true market value. A car’s fair market value depends not just on its features, but also on where it is located.

In addition, the 10 percent cap on the base loss of value is arbitrary. It was just the precedent established by the original usage of the 17c formula and used as the standard moving forward. When using the 17C formula for determining the diminished value of a vehicle, the number of miles driven has an impact on the diminished value two times - firstly under the NADA’s Market Value and secondly when applying the mileage multiplier.

When setting a diminished value, you will want to get appraisals and inspections from reputable third-party companies to get the highest valuation you can. 

Consider trying websites other than NADA to find the fair market value of your vehicle. Kelley Blue Book is a reputable example and can show different values than NADA. Also, consider getting a third party to physically inspect the damage to your vehicle. They will likely have a better idea of what to look for, and you can use their assessment of the damage to negotiate a better value.

an image of a model car, keys, and money

Learn More: 9 Tips to Maximize Your Compensation

Key Takeaways

  • An auto insurance payout is based on the value of the vehicle you were driving prior to the accident 
  • A standard insurance policy will not pay you the cost of an equivalent new model
  • You are not guaranteed a payment equal to the amount you still owe on the vehicle 
  • Gap insurance or replacement insurance can be useful but are expensive additions to most insurance policies 

Hire an Experienced Car Accident Lawyer

The claims process in any insurance case can be a drawn-out, high-stress task. The constant back and forth with at least one insurance company will wear down even the most determined customer. If you have been involved in a car accident, the last thing you will want is to get bogged down in the details and red tape involved in the claims process. A talented personal injury attorney can help you negotiate with insurance companies, coordinate with the claims adjuster, get you fair compensation for your vehicle, and ultimately save you both time and stress. Contact our legal team at Marks Law Group today to schedule your free initial consultation!

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