DIMINISHED VALUE - FACT OR FICTION

BY JOHN A. WALCZUK

The concept of Diminished Value is often disputed by insurance carriers as fiction. This assumption by the carrier appears to be based on a simple fact: the actual loss has not yet been realized. Taking this approach, the carrier will often attempt to avoid any consideration for the current decrease in the resale value of a vehicle.

In our opinion, insurance carriers attempt to justify their reluctance to recognize diminished value based on how our annual tax returns define loss. Individuals report losses based on what is actually realized, this is referred to as the cash basis. Using a stock purchase as an example, you buy at one price and sell at another and realize either a gain or loss that is shown on your annual tax return.

This same approach of actual recognition is not used by insurance carriers or by financial institutions. Staying with insurance carriers, they assume certain losses that are not yet reported but are allowed for deduction purposes. The concept is called, “incurred but not yet reported”. Now ask yourself, how is this so different from the loss of value to your vehicle that will only be realized when it is sold?

Why should a vehicle owner need to sell their previously undamaged vehicle to recognize a loss? Simple answer: they should not. Their vehicle’s resale value is less after an accident and does result in an economic loss to the owner. This loss in economic value should be recognized and paid for by the insurance carrier. Taking a moment to understand the concept of diminished value provides a clearer understanding. A vehicle once damaged in an accident has a lower resale value when compared to one not involved in an accident. One can see this when referring to Carfax. Accepting this concept, how is this different from the insurance company deducting losses that have not yet been reported? Is there really any difference? Clearly not.

So what is the definition of a diminished value loss? How do we determine what is diminished value loss? The definition of a diminished value loss is the current reduction in the resale value of a vehicle that can be directly attributed to an accident. The process of measuring or calculating this loss is complex. In determining this loss one must consider comparable vehicles, uniqueness of this make and model, as well as the impact on the vehicles future selling price. Additionally, consideration must be given to the possibility that once damaged in an accident, there may not be a resale market in the future.

We will let you draw your own conclusion. Is diminished value fact or fiction?

The author of this article is a member of the Long Island Auto Body Repairmen’s Association. He specializes in helping vehicle owners obtain fair market settlement offers for their totaled vehicles. He can be reached by email at John@ZBLLC.net or by calling 516-364-0713.

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