Using Data In A Responsible Manner

The Real Estate Espresso Podcast

Using Data In A Responsible Manner

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Using Data In A Responsible Manner

Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce.

The Department of Justice accused RealPage in August of 2024 of facilitating unlawful price fixing and rent inflation by using competitively sensitive non-public data from multiple landlords to generate rent recommendations, effectively aligning pricing across competing properties.

Antitrust behaviour, also known as anticompetitive conduct, refers to the business practice that substantially lessens competition in the marketplace. It restricts free trade or leads to unfair formation or abusive monopolies. These actions ultimately harm consumers, resulting in higher prices, maybe lower quality, reduced innovation, and less choice.

In the U.S., antitrust law is primarily governed by the Sherman Act and the Clayton Act. The Department of Justice’s investigation into RealPage and its pricing practices began much earlier, reportedly in late 2022, following reports of anticompetitive behaviour. The August 2024 filing marked the beginning of the formal legal case.

Well, this past week the Justice Department’s Antitrust Division filed a proposed settlement to resolve the U.S. claims against RealPage as part of its ongoing enforcement against algorithmic coordination, information sharing, and other anti-competitive practices in rental housing. The proposed settlement would help restore free market competition in rental markets for millions of American renters. Competing companies must make independent pricing decisions, and with the rise of algorithmic and artificial intelligence tools, the Justice Department is signaling that it’s going to remain at the forefront of vigorous antitrust enforcement.

RealPage is a provider of commercial property management software and services for conventional multifamily rental housing. As alleged in the plaintiff’s complaint, RealPage’s revenue management software has relied on non-public, competitively sensitive information shared by their landlords to set rental prices. RealPage’s software also included features designed to limit rental price decreases and otherwise align pricing among competitors. In addition, RealPage hosted meetings attended by competing property management companies where competitively sensitive information was shared—that’s the basis of the allegations.

If approved by court, the proposed consent judgement would require RealPage to cease having its software use competitors’ non-public, competitively sensitive information to determine rental prices in runtime operation, to cease using active lease data for the purposes of training the models underlying the software, and to limit model training to historic or backward-looking non-public data that’s been aged for at least 12 months. It’s required not to use models that determine geographic effects narrower than at the state level, which is broader than markets alleged in the complaint.

It’s required to remove or redesign features that limit price decreases or align pricing between competing users of the software. And it’s required to cease conducting market surveys to collect competitively sensitive information. It’s required to refrain from discussing market analysis or trends based on non-public data pricing strategies in RealPage meetings relating to revenue management software. And it’s required to accept a court-appointed monitor to ensure compliance with the terms of the consent judgment. And finally, it’s required to cooperate with the U.S. lawsuit against property management companies that have used the software.

But here’s the interesting part. Consumers are allowed to use data in comparison shopping between vendors. In this case, suppliers cannot use that same data. Now, I think at the heart of the issue is whether that information is publicly available or not.

Going forward, RealPage’s rent pricing tools will be constrained in their use of fresh competitively sensitive information. It’s required to shift towards older or more aggregated data inputs. The company is signaling that it’s going to continue investing in AI-enabled software within a more responsible and regulator-aligned framework. That would affect how aggressively landlords can rely on algorithmic rent optimization in tight markets.

Now, separate from the federal case, RealPage has faced class actions and state investigations, including a settlement with the Nevada Attorney General, under which it agreed to specific limits on how the non-public data from Nevada properties can be used and to make monetary contributions benefiting local renters. State-level litigation and negotiations continue in parallel with the Department of Justice matter, with some state attorney generals and landlords still disputing the proposed civil settlements tied to the alleged price fixing.

Now, the information provided by RealPage, in my opinion, is frankly no different than the information that is routinely available from a multitude of sources, including Yardie Matrix, CoStar, and ALN just to name a few. This information is largely publicly available in close to real time. What’s perhaps not publicly available is the extent to which landlords have been negotiating leasing incentives into leases with specific tenants. That information might not be publicly available. If RealPage was making pricing recommendations to landlords using that information, then I can see where a line was crossed and that would be considered anti-competitive.

But the truth is, landlords already have ready access to this kind of market data on a regular basis. Even an appraisal or a third-party market study will make this same kind of rental pricing recommendations based on the market data. This has been a standard practice for decades when it comes to any financing or any financing due diligence. Any property owner with a brain can integrate their market data into a series of pricing strategies.

Now, while RealPage is having one hand tied behind their back with this settlement, there are in fact very few secrets when it comes to pricing. We live in a fully interconnected world where, in fact, even tenants can increasingly use artificial intelligence to get up-to-date pricing information and, frankly, they have the upper hand when it comes to finding the lowest price.

It is illegal for businesses who compete to collude on pricing, and any responsible business needs to be up-to-date with what’s happening in the market. Quite frankly, there’s enough publicly available information for any business to keep their finger on the pulse.

And as you think about that, have an awesome rest of your day, go make some great things happen, and we’ll talk to you again tomorrow.

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