Property Damage: Diminution in Value and Cost of Repair

When there is damage to real property, the ordinary way to calculate the damages is the diminution in value test. While circumstances causing damage can vary, it usually comes up in construction defect or repair cases. The “diminution in value test…is calculated by determining the difference between the fair market value before and after the event causing the damage.” Business Men’s Assur. Co. v. Graham, 891 S.W.2d. 438, 449 (Mo. App. W.D. 1994). The property owner, or an expert witness, needs to present evidence of diminution in value.

The cost of repair test is an exception to this rule. It measures “the difference between the value of the property with the defective work and what the property’s value would have been if it had been constructed [properly].” Id. To qualify for this test, the plaintiff must present evidence demonstrating that the “cost of repair is insignificant to the total market value of the building.” Id.

Under either approach, there must be evidence of the fair market value of the building. Id. at 450. Fair market value is the price “which the property could be sold by a willing seller to a buyer who is under no compulsion to buy.” Id.

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