Diminution in value is used when assessing damages for breach of contract cases that involve real estate, such as home sales or property purchases or lease etc. The idea behind this type of damage assessment is that the plaintiff should be compensated for their loss based on what they would have received had they received what was promised under the contract.
The calculation requires that two main factors be considered:
The market value of what was actually delivered; and
The market value of what was promised in terms of performance or quality (also known as “warranties”).
An item’s value can be reduced if one party damages or destroys it, but only if that party breaches the contract.