RealPage’s Legal Problems Might Not Be All About Its Tech

Supported by Valcre

Propmodo Technology

By Franco Faraudo · August 28, 2024

Greetings!

The DOJ is suing RealPage for allegedly facilitating price fixing through its rent optimization software by encouraging landlords to share sensitive data and pushing them to follow pricing recommendations. This case could set a precedent for "algorithmic collusion" in other industries. Plus, check out this week’s Propmodo Technology focus on Valuation & Appraisal with the support of our friends at Valcre.

RealPage’s Legal Problems Might Not Be All About Its Tech

After facing multiple class action lawsuits and being prosecuted by a few state AGs, RealPage is now facing the final boss of litigation. The Department of Justice is now suing the company for its alleged role in price fixing of rental properties. At the heart of the suit is RealPage’s rent optimization software YieldStar, and AI Revenue Management, but after looking further into the complaint, the technology itself might not have been as damning as RealPage’s business strategy.

The sharing of non-public data between competitors using technology is part of the issue that RealPage will have to defend against. That defense will be a lot harder because of how RealPage sold its revenue management products to clients. “Landlords agree to provide this information for use by their competitors because they understand they will be able to leverage the sensitive information of their rivals in turn,” the complaint states. “In its pitch to prospective clients, RealPage describes AIRM’s and YieldStar’s access to competitors’ granular, transactional data as a meaningful tool that it claims enables landlords to outperform their properties’ competitors by 2–7 percent. RealPage clients receive training that highlights the role of competitors’ transactional data in the price recommendation process.”

This means that both RealPage and its users knowingly entered into an anticompetitive agreement, meaning that they are not able to just blame the software.

Another defense that RealPage has used is that its software only suggests price changes; the landlords are the ones who ultimately make the decisions. But the DOJ doesn’t see it that way. They cite the way that the software makes it easier to accept the recommendations as evidence of deliberate market manipulation, “AIRM and YieldStar provide daily price recommendations. RealPage has taken multiple steps to increase compliance with AIRM and YieldStar price recommendations. It designed AIRM and YieldStar to make it much easier to accept recommendations than to decline them. It built an auto-accept function and pushes clients to adopt it and increase its role.”

The way that RealPage operated to support its products is also being brought up in the complaint. Rather than just leaving their clients to use their software as they saw fit, RealPage apparently had employees whose job included deterring people from not implementing the recommendations that the software provided. The complaint explained that “…its pricing advisors encourage landlords to follow AIRM and YieldStar pricing recommendations. Among their duties, pricing advisors review any request to override a price recommendation.”

The complaint goes on, “For every recommendation that she does not accept—whether overriding or keeping the previous day’s rent—the property manager must provide “specific business commentary” for diverging from the recommendation. This justification, RealPage instructs, should not be a mere preference for another price but must be based on a factor that the model cannot account for, such as local construction or renovations occurring in the building. It must be a “strong, sound business-minded approach.”

The RealPage lawsuit is one that could set a precedent for “algorithmic collusion” that could be applied to many other industries. But as much as the algorithms are being put on trial, the company is too. Part of the problem, it seems, is the way that RealPage pushed its software’s recommendations. Other companies building similar tech would be wise not to do the same.

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Propmodo Technology is edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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