Identifying a vehicle’s Diminished Auto Value is a key factor whether you are in a buying or selling position. When one is in an auto accident, the insurance company is required provide a repair quote commensurate with the coverage purchased. But there is a downstream hidden cost that many are not aware of. It’s called the Diminished Auto Value (DAV). This is defined as the cost of the subsequent and fairly subjective loss of vehicle value, even though it has been completely restored. Failing to pay attention to this secondary value can cost an owner thousands when the time comes to do a dealer trade, or attempt to execute a private-party used car sale. And based on Kelley Blue Book (KBB) metrics the loss can be significant.
For example, let’s say that an owner has a 2008 BMW 535i at a Manufacturer’s Suggested Retail Price (MSRP) value of $49,900.00, and the vehicle is involved in a fairly straightforward front-end traffic accident. The repairs require bodywork, paint, grill, radiator, fan assembly and suspension repair, and the insurance adjuster estimates the bill at $6,000.00.
Now, let’s say that the owner wants to sell the car in 2010. BMWs typically depreciate on an average of 21% in the first model year, with an additional $10% per year going forward. So in our future-scenario the car’s 2010 value will be worth $34,930.00 based on KBB’s high-average and after accepting a two-year depreciation value of $14,970.00.
However, our BMW has also experienced the front-end accident that cost $6,000.00 in repairs. And that event triggers KBB’s doctrine of Diminished Auto Value as it applies to our ultimate resale value. Based on this secondary metric our BMW is now worth $28,930.00, since the accident equals further reduced value.
To understand how the calculation works simply apply the original repair value of $6,000.00, plus the two-year depreciated loss of $14,970.00 leading to a final DAV total of $20,970.00. Then take the DAV total and subtract it from the original MSRP total, leaving a final resale value of $28,930.00.
At the end of the day, whether KBB applies the doctrine empirically or not, the DAV has a real impact on final resale value and clearly worth considering in the event of a significant accident.