Over the last decade, apartment owners and managers have increasingly used algorithm-based software to set rents. This practice and its practitioners are now under scrutiny as many owners and operators are being investigated and sued for colluding to artificially increase rents to above-market rates, thereby violating antitrust laws. The primary target of this scrutiny is RealPage Inc., a company that developed Yield Star, the revenue management software many owners use to set rental rates. Multifamily owners using this software and software like it should be aware of the risk and take steps to shield themselves from potential liability by limiting reliance on this software, making independent assessments of market conditions when setting rents, and precluding the use of private pricing data in their service agreements with revenue management vendors.

The ongoing litigation involving RealPage and many of the nation's largest multifamily owners has revealed the risks associated with using revenue management software that promises to assist its clients in achieving maximum revenue by pricing rental units competitively. An investigation by ProPublica from 2022 revealed the details by which RealPage used software and owners' private pricing data to recommend and incentivize its users to use rent pricing in major U.S. cities. Following ProPublica's investigation, lawsuits were filed, and several states and the federal government began investigating the practice as illegal under antitrust laws.

The lawsuits were consolidated into a class action suit in federal court in Nashville. The consolidated suit alleges RealPage's software takes its clients' commercially sensitive pricing and supply data, applies its revenue management software algorithm to that data pool, and then produces rental pricing "recommendations" for each client's properties. RealPage's clients agree to set prices based on a pool of their competitor's proprietary data. The plaintiffs allege in their complaints that RealPage is behind an illegal price-fixing scheme utilizing its software to help clients price their units to secure revenue lifts by increasing rents despite typical market forces in a competitive environment.

RealPage’s clients allow RealPage to use their commercially sensitive pricing and supply data in its algorithms to set their own rent prices and help set the rent prices of their competitors. The clients also outsource their daily pricing and ongoing revenue oversight to RealPage by accepting RealPage’s price recommendations 80-90% of the time and allowing RealPage to set prices for their properties. Clients either accept oversight of their pricing activities by a RealPage pricing advisor or allow RealPage to train their internal revenue managers tasked with similar oversight.

In December of 2023, the federal court in Nashville denied multiple motions to dismiss filed by RealPage and several other defendants, finding that the most persuasive evidence of a scheme to fix prices is the fact that clients provided RealPage with their proprietary commercial data knowing that RealPage would require the same from their competitors and use all of that data to recommend rental prices.

The court stated several facts alleged in the complaints that bolstered the allegation by the plaintiffs of a scheme to fix prices. Companies utilizing similar revenue management software products should review the features of such products and any existing or potential contracts with providers, flagging the following:

• Software that discloses whose non-public data is being used for pricing decisions that maintain a “peer list” of competitors within a specific distance whose transaction data will be used as input, and/or permits clients to review and comment on their peer list and request that particular competitors be included.
• Software that charges substantial monthly fees (can be as much as $1 to $2 per unit) for pricing recommendations.
• Software that utilizes its own pricing advisors (especially pricing advisors who oversee multiple competitors) or trains clients’ revenue managers to monitor clients’ adherence to price recommendations closely.
• Software that provides property addresses or other identifiers of competitors to its clients, allowing clients to determine which of their competitors also utilize the software.
• Software that offers opportunities for competitors to engage directly with one another through “webinars, screen-sharing training modules, frequent calls, in-person ‘roundtables,’ hosts happy hours, and annual conferences.” 
• Software that enforces adherence to its pricing recommendations through assigning pricing advisors to its clients, providing compliance reports listing the names of individual employees who overrode price recommendations, requiring employees to provide business justifications for price overrides, and offering some clients quarterly meetings to identify how compliant the client was with the software’s pricing recommendations during the prior quarter.

Even if companies only accessed the aggregated data provided by the software, the court stated that this is irrelevant because the software compiles its clients’ private data and then uses its algorithm against that private data to recommend prices. Clients are still monitoring their competitor’s data because the information they receive from the software’s pricing algorithm uses private data. 

Interestingly, one defendant was released from the suit because its agreement with RealPage prohibited the use of private pricing data in making rent recommendations. Also, as reported by Reuters, two other defendants have agreed to settle the claims outside of court. While it is unclear how the litigation will end, the momentum does not appear to favor the practice of algorithm-based rent pricing when private competitor data is being used in the process. Accordingly, it is essential to ensure that any contract with a revenue management software provider explicitly prohibits the use of private pricing data. Other potential methods to limit liability include limiting reliance on the recommendations of the software and making independent analyses of the market when considering rents to set.