One Thousand Homes Audited and None Penalized for Their Score
In March 2026, the city of Ann Arbor, Michigan, celebrated a noteworthy milestone: over a thousand single-family homes have already received their energy scores under the HERD (Home Energy Rating Disclosure) ordinance, which has been in effect since March 2024. This figure carries significant political and symbolic weight. Yet, what remains under-analyzed is the economic architecture supporting this achievement, along with the structural limits that could hinder its scalability.
The ordinance mandates that sellers of single-family homes obtain a certified energy score before listing their properties on the market. The report must be included in the public listing and presented to the buyer. There is no minimum score required, nor are improvements mandated. The city covers the cost of the assessments through a program offering free consultations. Fines for non-compliance range from $500 to $1,000 per violation.
On paper, the regulatory framework appears flawless: transparency without penalizing the past, information without coercion, and a market mechanism that, in theory, should facilitate the rest. Jerrell Wylie, an official from the Office of Sustainability and Innovations in Ann Arbor, aptly described the rationale of the program: "Providing an energy score before a house is purchased supports residents' understanding of how homes operate and where there are opportunities for greater savings, comfort, and electrification." This is accurate, yet also incomplete.
What the Numbers Don’t Reveal About the Model
One thousand assessments over two years in a city of approximately 120,000 residents represents a significant, albeit not extraordinary, initial penetration. The real estate market in Ann Arbor conducts several thousand transactions annually, meaning the program captures a respectable share of the single-family home sales flow. So far, so good.
Structural issues arise when examining who pays for what. The city funds free assessments using public resources. This implies that the information model works, for now, because it is supported by municipal subsidies. This is not a moral critique; rather, it is a financial observation. A program that relies on local treasury to maintain its adoption rate is not a market model; it is a government program subject to budget review. When fiscal cycles tighten, and they invariably do, the free service will be the first item to be reconsidered.
The contrast with the commercial benchmarking program in the same city is revealing. Properties over 20,000 square feet report under the Energy and Water Benchmarking Ordinance, achieving a compliance rate above 80% by January 2026. However, that segment operates with institutional owners who have compliance departments, corporate lawyers, and budgets dedicated to managing regulatory risks. Transposing that logic to individual single-family home owners presents a scaling challenge that alters everything: incentives, management capacity, and willingness to pay.
Where Value Resides That the Market Is Not Yet Capturing
The thesis of the HERD program is that information changes behavior. There is national evidence to support this: homes with high-performance energy certifications sell at premiums of between 5% and 10% in markets like California and Washington. Should this dynamic replicate in Ann Arbor, the program creates tangible economic value for the efficient seller, pressures buyers to negotiate improvements for low-scoring properties, and sparks demand for local retrofitting and electrification contractors.
This is the only scenario in which the program becomes self-sustaining: when the energy score transitions from being a bureaucratic requirement to a variable in price negotiation. At that point, sellers stop viewing the assessment as a compliance cost and begin seeing it as an investment in positioning. Buyers use it to extract concessions. Banks, eventually, integrate it into collateral valuation criteria. And energy improvement contractors establish a pipeline of clients who are already aware of their score and wish to enhance it before selling.
This virtuous circle is possible. But it doesn’t activate automatically with the existence of an ordinance. It hinges on the density of comparable data within the market such that real estate agents begin to incorporate the score in their price-per-square-foot analyses. A thousand scored homes over two years might provide sufficient critical mass to observe this effect, or it may not, depending on geographic concentration and the homogeneity of the assessed housing stock.
What the city should be measuring, though there is no evidence it is doing so publicly, is whether high-scoring properties are obtaining sale prices above the neighborhood average. That data would transform the program from a transparency initiative into a documented value lever.
The Subsidy Trap and the Path to Self-Financing
A reasonably plausible scenario exists in which the HERD program, as currently designed, reaches its penetration ceiling without becoming financially independent. When municipal resources tighten, the free service disappears or becomes limited, and the economic burden of the assessment falls entirely on the seller, compliance rates will depend solely on the rigor of fine enforcement. And managing enforcement over thousands of individual real estate transactions is costly and politically complex.
The solution is not to eliminate the subsidy; it’s to transform its logic. A more robust model would design the subsidy as startup capital with a defined horizon while simultaneously building the market case for the assessment to transition into a service that sellers demand because it enhances their negotiating position. This requires the city to systematically and accessibly publish the correlation between energy scores and sale prices. It necessitates that real estate agents have incentives to use this information as a selling point. And it calls for local financial institutions to begin experimenting with mortgage products that reward the energy efficiency of collateral.
None of this is impossible. Some cities with more mature energy disclosure programs are already witnessing how data transitions from regulatory to commercial realms. However, this shift does not occur merely through political will and free assessments. It happens when market power players—banks, insurers, real estate listing platforms—have their own economic reasons to integrate the score into their models.
The Data Ann Arbor Still Lacks
Celebrating the thousand homes assessed is valid. Two years of implementing an unprecedented ordinance in Michigan, with an adoption rate demonstrating that the mechanism works operationally, is a public management achievement worthy of recognition. The Office of Sustainability built something that did not exist and made it function.
However, the program now enters its most challenging phase: the phase where it must prove that information generates action, not just documentation. That the thousand assessments are not just a thousand archived documents but a thousand conversations between buyers and sellers about efficiency, energy costs, and long-term value. That local electrification contractors are receiving more calls. That higher-scoring properties are leaving the market faster or at better prices.
Without that data, the program is a well-intentioned promise reasonably executed. With that data, it transforms into a market proposition that sells itself.
The challenge for any leader looking to replicate this model in another city or sector is not the regulatory design. The regulatory design of HERD is intelligent: without mandatory minimums, no penalties for the past, with projected rather than historical information, it removes the most common resistances. The challenge is the second mile: converting transparency into price, price into demand for improvements, and demand for improvements into a self-sustaining market.
Executives auditing whether their own organizations have impact models that survive without subsidy have a real-time case study here. Public funds can initiate an information market. Keeping it alive, scaling it, and making it anti-fragile against fiscal cycles requires that the private market finds an economic reason to participate in that market. That is the difference between a municipal program and a structural change. Building that difference demands using public funds as fuel to empower people, not as a permanent substitute for the forces that should propel them.
