RealPage Automated Price-Optimization Software in DOJ Crosshairs for Possible Antitrust Violations

By Eric Weld, MassLandlords, Inc.

A lawsuit brought by the U.S. Department of Justice and attorneys general in eight states against the proprietor of a widely popular revenue-management software product names several Massachusetts landlords, and could affect how some rental property owners set prices.

The Sherman Antitrust Act, depicted here, was first signed into law by President Benjamin Harrison in 1890, and used heavily by President Theodore Roosevelt. It was also levied against Microsoft nearly a century later, to curtail the company’s outsized personal computer market share. The Sherman Act was intended and is still used to disallow trusts among people or groups that unfairly collude to influence market or share prices in the group’s favor. Image: cc by-sa MassLandlords-Jennifer Rau.

The defendant in the case is a company called RealPage, Inc., based in Richardson, TX. RealPage is accused of breaching sections of the Sherman Antitrust Act in conspiring to monopolize the housing market and stifle fair competition among landlords. The states of California, Colorado, Connecticut, Minnesota, North Carolina, Oregon, Tennessee and Washington joined the DOJ as plaintiffs in the suit. The federal suit consolidates more than 30 antitrust cases against RealPage.

RealPage offers a software product called AIRM (formerly called YieldStar), a logarithmic data product uses artificial intelligence (AI) to compile a set of statistics that yield optimal pricing models for rentals. Some of the data included in the algorithm are supplied by the company’s customers. A 2022 analysis by ProPublica of RealPage’s revenue-management software services states that RealPage estimates its algorithm contains lease transaction data for more than 13 million rental units.

The analysis notes that RealPage has more than 30,000 customers for its real estate tech services, including the AIRM software. Customers of RealPage’s AIRM Lease Rent Option feature are landlords and property managers (typically with numerous rentals) for whom automated pricing assists their business. More importantly, as promoted by RealPage, AIRM users often see a significant increase in revenue based on their suggested rental prices.

RealPage promotes its rent-advising software as a revenue booster capable of outperforming the market by up to 7%, according to ProPublica. In one example, Greystar, the largest property management firm in the country, reported that its buildings using YieldStar software, which contain tens of thousands of apartments, outperformed competitors by 4.8%. The analysis cites a couple in a downtown Seattle building using RealPage pricing, who saw their rent raised by 33% in a single year.

Conspiracy or Not Conspiracy?

One sticky issue for RealPage is that some of the statistics incorporated by the AIRM algorithm are not public information. For example, the algorithm uses rent prices received on actual executed leases, as well as real lease terms – data not available to the public. If a group of landlords were to get together and share such data from their own businesses, then use that data to set rental prices in concert, it could be considered illegal conspiracy. Further, RealPage conducts work groups, including landlords, that meet privately for consultation, says the ProPublica analysis, a red flag for antitrust investigators.

The gray area in the RealPage lawsuit is that, in using its revenue management software, landlords are not gathering to conspire or collude. They may be inadvertently colluding by collectively using sensitive rental data included in the algorithm. But their unwitting conspiracy is allegedly managed and guided by RealPage through their AIRM and Lease Rent Option software. And, refutes RealPage, there is nothing in antitrust laws that explicitly says the anonymous use of nonpublic data in constructing algorithms is illegal. Directly sharing such data with customers would clearly violate the Sherman Act, but that is not what RealPage is doing.

The Sherman Act was passed by Congress in 1890. Though the law continues to frame antitrust jurisprudence, when it was written, technology like AI and sophisticated algorithms that compute data far faster than human minds were generations away from invention. This case provides another example that today’s technology, across all fields, is changing faster than laws and public intent can keep up or manage.

RealPage Refutes the Charge

The RealPage website is now largely dedicated to its defense against the wall of antitrust allegations. It appears scrubbed of former marketing language promising large revenue gains through use of its software. But older versions of the company’s website contain descriptions of its revenue management services that promise bottom-line gains not only by maximizing rents, but also, sometimes, by intentionally leaving units unoccupied to drive up demand. “RealPage’s new AI Revenue Management helps you continuously maximize asset value by leveraging the best of YieldStar and LRO’s precision pricing capabilities,” notes language from the company’s website in 2020 and 2022. “It’s the industry’s only price optimization solution powered by next-generation data that makes it possible to consistently reduce vacancies and maximize rents.”

In a “Response to False Allegations Concerning its Revenue Management Software” currently posted on its website, RealPage argues that its rent price-management software benefits both housing providers and residents; that the company does not “set” rent prices, as its customers decide their own rent prices based on its suggestions; that it uses nonpublic data only anonymously and in aggregate; and that the allegations charging illegality are distorted, exaggerated and untrue.

RealPage points out that its YieldStar and Lease Rent Option (LRO) products were already closely scrutinized by the DOJ in 2017 when the company acquired LRO from another company, to assure no antitrust violations.

“The DOJ granted antitrust clearance for RealPage’s acquisition of LRO without any objections about RealPage’s revenue management products or related business practices,” notes the company’s response. “RealPage’s revenue management products are fundamentally the same today as they were when the DOJ reviewed them in 2017.”

This may be a specious argument. The DOJ’s 2017 review was limited in scope to approving RealPage’s acquisition of another company (LRO). It didn’t consider alleged conspiracy or collusion with landlords that impacts the overall rental market.

Landlords Working Together

RealPage’s marketing language, and public comments made in the past by RealPage executives, have not helped its claims of propriety. According to the DOJ lawsuit, RealPage has used the marketing phrase “a rising tide raises all ships.” The complaint also claims that RealPage’s vice president of revenue management services has said, “there is greater good in everybody’s succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down.”

The ProPublica report claims that one of the developers of the revenue management algorithm software told ProPublica that rental agents exercised “too much empathy” in contrast to AI-generated pricing models.

The DOJ complaint is littered with such anti-competitive language and has helped invite the antitrust action. RealPage has the right to, and will likely argue many of the statements in the complaint. Whether RealPage’s attempts to dominate the rental real estate revenue management market violates antitrust laws may come down to interpretation of the law. It may also help define the nature of collusion and conspiracy, and how information sharing is regarded for landlords going forward.

Numerous rental properties across the U.S., especially large apartment buildings, are increasingly owned by corporations and large rental real estate businesses. Corporate landlords are increasingly using automated products to decide rent prices, such as RealPage’s AIRM and Lease Rent Option software. Image: cc-by-sa Flickr-Runs With Scissors.

Two Large Rental Market Trends

Regardless of whether RealPage’s rent-suggesting algorithm product constitutes an antitrust breach, it does reflect a couple of trends transforming the rental industry. One trend is widespread movement toward pricing automation. AI-powered pricing software can process a massive array of statistical information pertaining to a specific rental unit and surrounding market trends. As a result, these tools can maximize accuracy and efficiency while reducing risk.

RealPage has been aggressive in marketing its AI-powered revenue-management software market-wide. There’s nothing illegal about that. But the broad acceptance of its software model may have created an unwitting cartel among housing providers. Such a substantial bloc of landlords and property managers acting in concert, and making pricing decisions based on nonpublic data, may be inadvertently and unfairly influencing the entire rental market, the DOJ lawsuit contends.

Another trend, ongoing for some time, is the transition of rental property from small landlords to corporate and large-scale businesses. Rental property (commercial and residential, including homes) owned by corporate landlords increased from 24% of the market in 2010 to 29% a decade later, according to an article published by the Medici Project, a private fund management firm.

Both these trends have the effect of removing the human element from the business of rental housing. Apartment administration – move-in, rent collection, eviction notices, etc. – is increasingly handled remotely. And the percentage of renters who don’t know their landlord – or know who their landlord is – is on the rise.

RealPage: Housing Shortage Not About Automated Pricing

For RealPage’s part, the company underscores many of the current conditions contributing to the housing crisis in the U.S. Automated price and revenue management is not among them, RealPage insists. It’s about burgeoning demand and insufficient supply, inflation, outdated zoning and permitting requirements, increasing home prices and other factors, its lawsuit response enumerates.

RealPage’s revenue-management software has nothing to do with increasing rents across the country, the company avers. And its success in attracting tens of thousands of housing providers to use its automated pricing tools does not constitute antitrust violations, it says.

The DOJ lawsuit and judges’ decisions on RealPage’s activities will decide whether the company is violating the Sherman Act. The case’s outcome may have lasting ramifications on how thousands of landlords set prices and compete against one another in the open rental market. Until the case is decided, MassLandlords members are advised not to discuss pricing or rents except when using publicly available information.