Dozens of articles ran a story on August 23rd covering new litigation in the Department of Justice vs. RealPage. The DOJ is suing RealPage alleging its software enables landlords to hike rents higher than they otherwise could. The case just started, and will take years to argue, but if the DOJ is successful, it instills Federal case law that could be used against MLSs in the long run.
What RealPage Software Does
Competing subscribers using RealPage contribute non-public information – such as occupancy and rents on executed leases with RealPage, which then uses that data to recommend rents at individual properties.
The claim is that the software is used by landlords to set rental rates for vacant and renewal leases.
What the MLS Software Does
Competing brokers and agents using the MLS contribute non-public information, such as coming soon, pending, and sold records (non-disclosure states) with the MLS, which then uses that data to recommend (AVMs, CMAs) home prices on individual prices.
The potential claim if the DOJ is successful in RealPage is that the software is used by many brokers and agents (and by extension homes sellers) to set home prices for both vacant homes and resale homes.
Here is what the Assistant Attorney General Jonathan Kanter said about the RealPage software, “As Americans struggle to afford housing, RealPage is making it easier for landlords to coordinate to increase rents.”
“The Justice Department pointed to instances where RealPage described its software as a tool for maximizing rent and outperforming the market.”
Have you ever heard an MLS executive talk about the MLS service providing higher sale prices to sellers – particularly in the wake of the Clear Cooperation Policy? Have you seen reports that show the homes listed in the MLS sell for more money than homes transacted outside of the MLS?
Will the DOJ win the RealPage anti-trust case?
These antitrust cases are brutal. The DOJ wins over 90% of all cases, and with the threat of triple damages, the stakes are insanely high.
In my opinion, software used by landlords – or real estate professionals – to provide data and analytics to allow the best possible decision on rents, leases, or sale of property is completely justified. My opinion is informed by the body of anti-trust rulings where the defense was able to present reason to determine antitrust concerns. In the most recent antitrust case, the court supported the DOJ’s argument for a per-se argument about antitrust. The DOJ merely needed to prove that competitors used the MLS to communicate… of course they did. That was the definition of the MLS; i.e. cooperation and the offer of compensation. As a per-se case, the industry’s defense lawyers were not able to present any evidence about the benefits of the MLS to the consumer or a healthy marketplace. It was a yes or no answer.
In a rule of reason defense against the DOJ, the defense would present the argument that the data in RealPage or any MLS provides the same facts to all participants in the marketplace. The range of outcomes from these facts are variable. Presented with the same information, individuals make different choices and that results in variable outcomes in pricing. That benefits consumers equally.
What we really see here in the case of RealPage and the MLS is related to many factors that precipitate the trends in the marketplace. Housing has gone up because of government policy that has led to inflation. The definition of inflation is the cost of living, and the largest part of that cost is housing. Every bit of software used by professionals to conduct real estate transactions and create reports and trends will show that.
In the wake of the political conversation about the weaponizing of the courts, more and more journalists are taking a close look at the claims and outcomes of legal cases. Kamala Harris has been outspoken about the use of rent-setting algorithms while running for president. Atty. Gen. Merrick B. Garland said, “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.”
The suit against RealPages is silly. They take data and make it available just like in nearly any other industry. Who is going to sue Kelly Blue Book, or Edmunds, for putting out data on new/used car values? Ever been to the dealer to trade in your car and they bring out the dreaded “Kelly Black Book” as justification for a very low trade in value? More people own/lease cars than own houses, so why not go after them? The real estate industry just happens to be the “today’s target”. Let’s hope the focus changes soon.
I agree Michael – It would seem like any industry that collects data from its participants to create advanced market analytics to inform pricing trends would be at risk if this slippery slope of antitrust case law rolls downhill this way.