DOJ Sues Property Management Software Giant for Price-Fixing

The Department of Justice (DOJ) and eight state attorneys general on Aug. 23 charged real estate software company RealPage with helping conduct an illegal endeavor to drive up the price of rents in cities across the United States, using “algorithmic pricing software” to allow landlords to coordinate rather than compete to the detriment of renters.

The civil suit, filed in the Middle District of North Carolina federal court, includes plaintiffs North Carolina, Connecticut, Washington, California, Colorado, Minnesota, Oregon and Tennessee.

The lawsuit comes after an almost two-year investigation by the DOJ, with unnamed sources telling Politico earlier in the summer that regulators would be taking action to curb the alleged illegal behavior.

“Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law,” said Attorney General Merrick B. Garland in a statement. “We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents. Using software as the sharing mechanism does not immunize this scheme from (antitrust) liability.”

RealPage, which claims on its website to service more than 24 million rental units worldwide with property management software and data analytics, is also currently being sued by various groups of renters, who are making broadly the same allegations.

On X (formerly Twitter), Amy Klobuchar, the senior U.S. senator from Minnesota, wrote:

“When landlords collude to delegate pricing decisions to algorithms, renters can lose out on the benefits of competition and face higher rates. I called on the DOJ to investigate RealPage’s use of algorithms to set rents and now they are taking action with a major antitrust case.”

Garland explained the charges in depth during a press conference. 

“Over a century ago, Congress passed the Sherman Antitrust Act to protect competition in the marketplace. When it was passed, an anticompetitive scheme might have looked like robber barons shaking hands at a secret meeting. Today, it looks like landlords using mathematical algorithms to align their rents. But antitrust law does not become obsolete simply because competitors find new ways to unlawfully act in concert,” he said.

RealPage has argued that its services have been carefully crafted to comply with the law and that the company has cooperated with regulators, and promised to “vigorously” defend itself in court, calling the suit “devoid of merit.”

“We are disappointed that, after multiple years of education and cooperation on the antitrust matters concerning RealPage, the DOJ has chosen this moment to pursue a lawsuit that seeks to scapegoat pro-competitive technology that has been used responsibly for years,” the company said.

The lawsuit comes in the heat of an election year, when housing has become more and more of a headline issue for both parties. With rental costs rising steeply in recent years (though with some signs of easing off), the lawsuit by the Biden administration constitutes a recognition that people are paying attention to how—and why—the price of keeping a roof over their heads has grown.

While most economists have pointed to the imbalance between supply and demand as the largest factor in driving up housing costs—both rental and purchase prices—the DOJ alleges that RealPage explicitly sought to keep rents even higher by coordinating prices with tens of thousands of landlords.

“RealPage sells landlords what it calls ‘revenue management’ software. We allege that this software is developed, marketed and sold to enable landlords to sidestep vigorous competition in the rental market,” said Garland. “Competing landlords agree to submit to RealPage, on a daily basis, their most sensitive, non-public information, including rental rates, lease terms and projected vacancies. 

“RealPage then combines this data from competing landlords and feeds it into an algorithm that provides real-time pricing recommendations back to the competing landlords. But, as we allege, these are more than just recommendations. RealPage actively polices landlords’ compliance with those recommendations. It also monitors landlords’ other policies by, for example, trying to stop concessions that landlords use to attract or retain renters.”

According to the DOJ lawsuit, landlords are very aware of the goal and effect of these policies. The complaint repeatedly references a RealPage refrain used by executives and in marketing: that “a rising tide raises all ships.”

The lawsuit quotes Keith Oden, executive vice chairman of real estate investment firm Camden Property Trust—a RealPage client—who said on a 2021 earnings call that he “welcomed” the presence of competing investors in his firm’s region, noting “they all use revenue management.”

“They raised rents when they should,” Oden said. “(T)he more high-quality competition we have in the marketplace, the better we tend to do.”

The lawsuit also emphasizes that RealPage relies on non-public info and goes to great lengths to collect granular data from various landlords, from floorplans to guest cards filled out by prospective tenants. Landlords then defer pricing decisions to RealPage’s algorithms, which allegedly pushes all rents higher than they would be in a competitive market.

“A large number of landlords effectively agree to outsource their pricing decisions to RealPage by using an ‘auto accept’ setting, which effectively permits RealPage to determine the price a renter will pay. Landlords understand what their arrangement with RealPage gets them. As one said, ‘I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and terms.’ That’s classic price-fixing,” said Garland.

“And RealPage understands what it’s doing, too,” he added. “In advertising its service to landlords, RealPage frequently says that a ‘rising tide raises all ships.’ As a RealPage vice president explained, this phrase means that ‘there is Set Spotlight imagegreater good in everybody succeeding versus essentially trying to compete against one another.’

“Under the antitrust laws, landlords—like any competitors—may not share with each other their confidential, sensitive data in a way that permits them to align how they price their product—in this case apartments—and thus cause renters to pay more than they would in a competitive market.”

Garland also noted that around half of renters spend a third of their income on rent—a level that the federal government considers “cost burdened.”

Ironically, sky-high rents, regardless of how they got that way, are potentially a positive for real estate agents seeking to help people buy and sell homes. Renters may decide to buy a house instead of continuing to pay jacked-up rents.

Anam Hargey, principal broker with @properties Christie’s International Real Estate, in the greater Chicago area, adds that “rents continue increasing yearly regardless of economic conditions. Maybe this will help people see that buying will almost always be a more financially wise decision.”