# Calculating Diminished Value

Blog/ Calculating Diminished Value

## Why do car values diminish?

Cars are designed and built to be durable, but as with every commodity, age and use alters their value over time. Unless it’s a highly sought-after vintage model, most cars lose value over time, also known as diminishing value. This is because newer models are worth more and because the wear and tear on the vehicle makes it less reliable in the long run. The more you’ve driven your vehicle, the less value remains. Picture it this way: when you buy a car, you’re buying a certain amount of useful life. You expect new cars to be reliable, with proper maintenance of course. Used cars are much cheaper because you’re only buying a portion of the car’s overall useful life. Every year and every mile diminishes the car’s useful life and its value will eventually approach \$0.

## Can I still get a good price if my car has been involved in an accident?

What happens if your car has been in one or more accidents or is totaled? Accidents will diminish the value of your car more than normal wear and tear. Even if a car is repair to visually perfect condition after an accident, accidents are recorded in a car’s history and will affect its value. The best repair work isn’t considered restoring the car to its original, factory-made condition, because it’s not as easy to regulate or control the quality of the repairs compared to the conditions one would generally see in an auto factory. While damage due to accidents will certainly impact the overall value of your vehicle, there are ways to confidently calculate how much this damage will cost you financially.

## Where can I find the original value of my car?

First of all, you should look up the estimated value of your vehicle via Kelley Blue Book or another reputable source. The Kelley Blue Book will give you a general value estimate based on your car’s make, model, year and condition. The Kelley Blue Book is seen as an impartial guide for pricing new and used vehicles and is a good big picture guide to your car’s value. It can be used to compare prices for used and new cars in various conditions, and is a useful guide for buyers and sellers alike.

## How can I determine the value of my used/damaged car?

Once you know the original value of your vehicle based on the Kelley Blue Book estimate,you can use the 17c formula to determine your car’s value after an accident or continuous use. The 17c formula is an industry-wide standard that is considered a reputable way to calculate a car’s worth, including any diminished value from damage due to accidents. The 17c formula takes both damage and mileage into account to determine a car’s diminished value. To start, look up your car’s original value (pre-accident). From there, you will apply multipliers based on a 10% depreciation cap, damage and mileage. The 10% cap comes from the insurance industry standard that assumes that your car’s value will not have depreciated more than 10%. The damage multiplier is on a scale of 1.0 to 0.0, 1.0 being severe structural damage and 0.0 being no structural damage or replaced panels. This damage multiplier descends to 0.0 and is based on benchmarks such as 0.25 (minor structural damage). The key criteria here is whether the repairs pose potential risks to future drivers in the case of additional accidents. If a car’s body or structure are damaged, the vehicle may not perform as well during another accident. This is less of a risk if the damage is limited to a damaged bumper or cosmetic scrapes. Finally, the mileage multiplier is also a 1.0 to 0.0 scale, but it descends in increments of 0.2. Each 0.2 increment represents 20,000 miles. So if your car has 60,000-79,999 miles, you will apply a multiplier of 0.4.

## Example Diminished Value Formula:

If your car was originally worth \$15,000, was involved in a minor accident with minor damage to the structure and panels, and had 24,000 miles on it, the 17c calculation would look like this:

\$15,000 (original value, pre-accident) x 0.10 (10% depreciation cap) x 0.25 (minor structural damage) x 0.8 (24,000 miles) = \$300

Age, the accident and mileage depreciated the car by \$300, so the car’s value is now \$14,700. If the car was involved in a serious accident with major structural/body damage, the damage multiplier would have been 1.0 instead of 0.25 and the car would have depreciated by \$1,200, making the car’s value \$13,800 instead. The severity of the damage in an accident and the miles driven will impact the car’s value based on the maximum depreciation of 10%. With this calculation, you can be confident that you are getting the best possible price for your vehicle, no matter what shape it’s in.