Instances of local damage in timber such as knots, decay, and cracks can be translated into a reduction of service life due to mechanical and environmental loadings. In wood construction, it is very important to evaluate the weakest location and to detect damage at the earliest possible stage to avoid future catastrophic failure. In this study, modal testing was used on wood beams to generate the first two mode shapes. A novel statistical algorithm was proposed to extract a damage indicator by computing mode shapes of vibration testing before and after damage in timbers. The different damage severities, damage locations, and damage counts were simulated by removing mass from intact beams to verify the algorithm. The results showed that the proposed statistical algorithm is effective and suitable for the designed damage scenarios. It is reliable for the detection and location of local damage of different severities, location, and number. The peak values of the damage indicators computed from the first two mode shapes were sensitive to different damage severities and locations. They were also reliable for the detection of multiple cases of damage.