If A Car Has Been Involved In An Accident, Is It Worth Less?
It is common knowledge that an automobiles retail market value is diminished, after it has sustained moderate to major damage in an impact or loss of various types. This is not withstanding the fact that the sustained damages may have been properly repaired. Demands for payment to compensate a vehicle owner for the recovery of damages in excess of the cost to repair the vehicle, when the value of the vehicle has decreased due to its Inherent or Residual Diminished Value, are becoming more commonplace today. Most first party claims of this type (Insured/Policyholder) are specifically excluded within the material damage policy's of most major carriers. Third party claims of this type (Claimant/Vehicle Owner) are not excluded, due to the fact that no contract of insurance would be in effect between the insurance carrier and the non-policyholding claimant, or third party, who suffered the damages at the hand of an insured.
This sounds pretty straightforward, but underneath this statement appears an imposing stance by most all major insurance companies in Europe and North America . The majority of insurance carriers are adamant that when they pay to repair a damaged vehicle, then there exists no additional claim of damages for the vehicle. They believe that if a car is repaired properly, there is no Residual Diminished Value, simply because of the fact that the vehicle was involved in an accident. If it is restored to it's pre-accident condition, they believe that there is no Residual Diminished Value. That may be logical in most cases, but used car buyers are often not logical. If their given the choice between two identical used cars, except for the fact that one was in a major accident, its safe to assume that most all buyers would choose the car that was accident-free!
Remember, Every Accident Is Unique!
The economic impact of an accident will depend on such obvious issues as whether a car has sustained cosmetic or frame/unibody damage and whether the car is a newer or older model.
Some industry authorities caution that in many cases, Inherent or Residual Diminished Value will be difficult to prove and that, at least in some cases, a wreck and subsequent repair may actually increase the resale value of the car (older collector cars specifically). Some note that accident repairs can sometimes increase the value of a car. If an older vehicle is in a moderate or severe accident, then a new paint job, battery, radiator or tires can increase its resale value and marketability.
The opposite is true for a new or near new luxury, high line, ultra high line or exotic car involved in a moderate or major accident. Moreover, a new car has to have a huge amount of damage to be considered totaled or not repairable by an insurance company in the first place. The rule of thumb used by most insurers is to total out a vehicle, if the cost of repairs exceeds the market value of the vehicle, less the salvage value of the vehicle in its damaged state. The majority of the insurance industry standards are as follows. Most insurance companies will spend up to approximately 75% of the retail market- price of a vehicle, for the repairs. This is primarily due to the fact that damaged vehicles (salvage) are valued at around 25% of the pre-accident, retail value of the vehicle.
The record of some of the autobody industry's ability to repair the more severely damaged vehicles, is questionable. In a number of cases, a number of body shops lack the expertise and equipment to properly repair vehicles that have moderate or major damages. With the certified and state of the art, fully equipped collision repair facilities (exotic or ultra high-line "CAQ" shops) that are operating in many areas, this scenario would be very unlikely to occur. Even if a car is fixed to the highest industry standards, that will not solve the problem of Residual Diminished Value.
Residual or Inherent Diminished Value varies from as little as 10% to as much as 50% of the vehicles retail value. Many factors are relevant to each percent of the Diminished Value for a vehicle. There are also some limited circumstances where there may not be any Residual Diminished Value.
The 3 Types of Diminished Value:
1. Inherent /Residual Diminished Value - The automatic loss in vehicle market value from an accident. Almost every damaged vehicle will have some measure of inherent diminished value, which is still an actual loss to the vehicle owner.
2. Repair Related Diminished Value - A loss in market value due to remaining flaws and defects caused by improper or substandard repairs. Items in this category have been paid on the repair estimate, but have been repaired improperly, or perhaps overlooked completely.
3. Insurance Related Diminished Value - A loss in vehicle market value due to insurance claims practices. This is typically caused by the insurance carrier failing to pay to repair a flaw or defect listed on the repair estimate or requiring the use of non-compliant replacement parts.
The 3 Diminished Value Damage Qualifiers:
1. Sustained physical damages must meet or exceed 3% of the loss vehicle's retail value at the time of the loss.
2. A major body panel on the loss vehicle, would require replacement (hood, fender, door, rear quarter panel, rear body panel, rear trunk lid or lift-gate).
3. Some form of structural damage was sustained by the loss vehicle, from the impact, with contact or induced damage.
All three (3) qualifiers ARE NOT required, but at least "1" of the qualifiers is required in order for inherent diminished value to be applicable.
The amount and nature of the sustained physical damage, is part of the diminished value claim.