The Dark Truth Behind RealPage And How It Affects You

While you might not have heard of the company RealPage before, chances are you've been affected by it, especially if you belong to the 34% of the U.S. population who rents. For starters, RealPage is a corporation behind a housing algorithm known as YieldStar. This algorithm suggests daily pricing for available rental units based on data it collects from across the United States. However, the algorithm's primary function is ultimately to boost profits for property management companies that use it (which can make the debate between owning and renting even more complicated). One housing company found that units managed by YieldStar outperformed non-algorithm-managed unit prices by 4.8%.

The main reason this software is so effective is the automated nature of it. As Jeffrey Roper, one of YieldStar's main developers, explained to ProPublica, "We said there's way too much empathy going on here. This is one of the reasons we wanted to get pricing off-site." A renter can choose to accept or decline the software's suggested price, but there's no additional negotiation or haggling available to them. In this way, taking human beings out of the rental-price equation ensures higher profit margins for developers and property managers, regardless of how it might negatively affect renters.

Another troubling element of YieldStar is that its parent company, RealPage, actively encourages its clients to avoid bargaining with potential renters and instead prioritize raising rents, even if it means fewer renters in their buildings and complexes. Worst of all, the software essentially allows landlords to coordinate pricing on a large scale, which not only violates antitrust laws but also causes serious harm to the renter.

Company background

RealPage hasn't been without its share of controversy. The Texas-based company was first under review in 2017 when the Department of Justice flagged a proposed merger between RealPage and its largest competitor, Rainmaker Group, and its proprietary software, Lease Rent Options. However, despite being flagged, the merger ultimately received antitrust clearance, which effectively made RealPage the country's largest provider of rent-setting analytics in the country.

The most important thing to understand about the controversy surrounding RealPage's algorithm, YieldStar, is whether it violates the per se rule of antitrust law. For non-legal experts, this would mean that the algorithm engages in price fixing, bid-rigging, horizontal customer allocation, and/or territorial allocation agreements. Many legal experts believe that the algorithm violates the law on multiple counts. By allowing separate apartment operators to use a shared algorithm that contains proprietary data (like a competitor's rent prices), RealPage is essentially engaging in rent fixing.

This not only allows property-management companies to function like a cartel but ensures renters face increasingly unaffordable housing in the name of profits. (Are you paying too much for rent?) DOJ lawyers explained in a recent court filing (that allowed a class action lawsuit brought forward by renters against RealPage to move forward), "The alleged scheme constitutes price fixing regardless of whether the competing landlords ever communicated with one another about prices" (via The Wall Street Journal). While it can be difficult to definitively prove just how much RealPage is increasing rents, it previously boasted on its website that its algorithm could outperform market rates by up to 7%.

The future of RealPage

As the housing market experiences crisis-level prices, RealPage has faced increased scrutiny from both local markets and at the federal level. Arizona Attorney General Kris Mayes even filed a lawsuit against RealPage (and nine landlords) in February 2024, charging the company with conspiring to illegally raise rents for hundreds of thousands of Arizona renters. "In the last two years, residential rents in Phoenix and Tucson have risen by at least 30% in large part because of this conspiracy that stifled fair competition and essentially established a rental monopoly in our state's two largest metro areas," said Mayes. "RealPage and its co-defendants must be held accountable for their role in the astronomical rent increases forced on Arizonans."

The attorney general for the District of Columbia similarly filed a lawsuit, while North Carolina announced it was actively investigating RealPage. In November 2023, New York Rep. Dan Goldman sent a public letter to the state's attorney general, Letitia James, calling for an investigation into RealPage and its practices. (Here's how much of your income you should spend on rent.)

However, perhaps the biggest source of potential trouble for RealPage and its algorithm YieldStar stems from the Department of Justice's Antitrust Division, which opened a civil investigation in 2022 looking into whether the company's rent-setting software allows for the illegal collusion of prices among landlords. Part of the DOJ's investigation is also rooted in lingering questions over RealPage's 2017 merger. Note that this civil investigation is still ongoing. However, in March 2024, the DOJ escalated its probe by also opening a criminal investigation into RealPage.