Tenants Are Suing Landlords for Allegedly Price-Fixing Rents with Software and the Feds Could Get Involved

A pair of lawsuits from tenants across the U.S. allege that landlords use rent-setting software to illegally collude and boost their rents. 

One lawsuit was filed in a district court in Tennessee and one in Washington. Both lawsuits were filed a year ago after a ProPublica investigation revealed that real estate software and analytics company RealPage’s rent-setting software, formerly called YieldStar, was artificially raising rents by sharing market data from competitors and setting prices for them, as well as sometimes encouraging landlords to leave units vacant.

Over 20 lawsuits from renters across the country alleging RealPage committed antitrust violations were consolidated in April in Tennesse’s Middle District, chosen for its central location. The United States Department of Justice filed a notice on October 17 asking for permission to participate in oral arguments on December 11. The court approved the government’s request, and the DOJ has until November 15 to submit a formal statement of intent if it wants to participate. 

The RealPage class action complaint alleges that a “cartel” of landlords “artificially inflated prices in the multifamily real estate market in the United States” using RealPage's software. Now called  RealPage Revenue Management Software, the program relies on market data it collects as well as rental data inputted by landlords. While landlords should theoretically be competitors, in practice they would “work with a community,” as one landlord is quoted as saying in the complaint. The complaint alleges that RealPage requires its users to accept at least 80 percent of its rent recommendations, and that users actually accept about 90 percent, giving RealPage market influence equal to its clients’ combined units.

But the most controversial practice alleged in the complaint—and laid out in the ProPublica report—is that YieldStar encouraged landlords to leave a certain amount of units vacant so that all the property managers using the service could artificially inflate rents. The goal was allegedly that “collectively in the market, there is never an oversupply of available units, artificially maintaining and inflating prices,” the complaint says. RealPage also coached its landlords that this practice would allow them to sacrifice “physical occupancy” for “economic occupancy.”

The main plaintiff in the lawsuit, Andrea Crook, rented from Mid-America Apartment Communities, Inc., a publicly traded real estate investment trust based in Memphis that is named as a defendant in the suit along with RealPage. Other large corporate landlords are named as defendants in the complaint, including Greystar and Cushman & Wakefield. 

When reached for comment, a RealPage spokesperson said that the company wouldn't comment on pending litigation and instead directed Motherboard to a "white paper" on revenue management written by a third-party consultant.

Another lawsuit in Washington makes similar allegations about a California-based company called Yardi Systems. The company was founded in 1984, when it provided property management software for the Apple II computer. 

That class action alleges that from September 2019 to the present, Yardi and a group of multifamily apartment managers colluded to set prices through a centralized price-fixing software it launched in 2011 called “RENTMaximizer.” (The software has since been rebranded as RevenueIQ.) The lawsuit says the pricing was “supracompetitive,” or above what the market would have otherwise determined.

“In the absence of knowledge about competitors’ pricing strategies, property managers can only make their best educated guesses and set their prices at optimal positions, usually a bit lower than what offered by competitors—to attract renters in the market,” the lawsuit argues.

But the company “unlawfully solved this problem” with RENTMaximizer, the lawsuit argues, which “effectively outsources the management of rental pricing from a landlord to Yardi itself, which then implements higher prices collectively across a group of landlords.”

The lawsuit quotes Terri Dowen, Yardi’s VP of sales, as saying RENTMaximizer “simplifies the process by eliminating rent rate guesswork.” The complainants believe this proves that the software was “marketed as a means to eliminate the discounting that would occur in a competitive market.” 

The complaint quotes Yardi marketing materials that say landlords who use the service “beat the market by a minimum of 2%” and “gain on average more than 6% net rental income.” Other marketing material for the product said users could “consistently beat the market.”

While the property managers who worked with Yardi are also accused of collusion in the complaint, this doesn’t always mean they directly communicated. (Although the complaint alleges they did that too.) Like RealPage's program, the software relies on data from landlords, who input rents in units they own, then get to see comparative rents in their area. Yardi then provides the landlord a recommendation for the units they own. 

Landlords boasted about the higher rents they charged with the software in Yardi’s marketing. Brantley White, president of Ardmore Residential, was quoted in a 2016 Yardi press release saying, “RENTmaximizer has allowed us to push rents more aggressively and takes more human error out of the process.”

According to the complaint, other witnesses who worked at property management companies confidentially gave plaintiff attorneys testimony. A leasing consultant at Bridge Property Management is quoted as saying,  “It was ridiculous. We were supposed to be helping these people who couldn’t afford a home. Instead, we were raising rents.”

The complaint says that many of the property managers being sued directly communicated with each other, as well, and a confidential witness said that one company would “call their competitors, often on a weekly basis, and specifically ask what prices those competitors were charging.” 

Yardi did not respond to Motherboard's request for comment sent to available channels; the company appears to only have a media contact for its Matrix research service. 

While there’s no data on how many households have rents set by Yardi’s software, an executive at the company claimed Yardi was used for 8 million residential units across the world. The attorneys also ran an analysis of 23,000 households using Yardi to see if rents were higher and found they were 6 percent higher among units where landlords used the software, in line with the company’s marketing claims.