Is a Texas software company allowing landlords to work together and drive up the cost of rent?

HOUSTON, Texas (KTRK) -- Is a Texas software company allowing landlords to work together and drive up the price for renters? Congressional Democrats believe it might be, with three new class-action lawsuits filed against RealPage, which is based in the Dallas area.

RealPage's software, YieldStar, essentially takes market data from surrounding properties and uses it to come up with a recommended price for rent to landlords. It's used by rental properties throughout the country. The concern with the company is that it might be allowing property managers to overcharge on rent and take advantage of tenants.

Heather Vogell, a reporter with ProPublica, published an extensive investigative piece in October that looks into the history, growth, and concerns surrounding RealPage. Her report prompted at least three lawsuits against the company in the following weeks from San Diego and Seattle. Congressional Democrats also sent a letter Monday to the Department of Justice and the Federal Trade Commission, asking for an investigation.

The concerns partly claim that the software was taking nonpublic data, such as actual rent prices in tenant leases, and allowing big property management companies to collude with one another.

"I interviewed experts that include antitrust lawyers and tenants who have been researching this. The fear is because of the way this software is designed and how it's used by so many, it's allowing landlords to essentially all raise their prices at once," Vogell told ABC13. "RealPage has actually encouraged landlords to accept a lower occupancy rate in exchange for raising rents. The concern there is that if you're doing that as a big company, you potentially have hundreds of apartments that are sitting vacant that otherwise would have been filled if the rent was lower."

Professor Nikolas Guggenberger, who teaches law at the University of Houston, explained how this practice impacts renters.

"The result is tenants end up paying a higher price than a competitive market wouldn't normally produce. What you're paying is closer to a monopoly price," he said.

He explained that what allowed RealPage to have such an extensive base of clientele across the country was a 2017 merger with its competitor, Lease Rent Options (LRO). The controversial move was approved by the Justice Department.

"If they had stopped that merger, the whole situation would look completely different for two reasons. One is they would not have the vast amount of data that they currently have, meaning they couldn't tweak their algorithms as well as they currently can. Second, if you have one algorithm centrally steered by one company, collusion becomes much easier than if you had two companies with competing algorithms," Guggenberger said.

The professor explained that this case is part of a broader subject called "algorithmic collusion," which is a method of price setting. The phenomenon expands beyond real estate and is also known to occur in online marketplaces.

"On an individual level, advising someone on prices is not a problematic thing. The problem here and where the collusive element really comes in is when a big company advises many clients on how to set their prices. The price you optimally set is not competitive anymore, because it's not a lot of people acting independently. It becomes something that is centrally steered," Guggenberger said.

RealPage did not return ABC13's request for comment. But in a statement previously provided to ProPublica, a representative wrote that their company strongly denies the allegations and will vigorously defend against the lawsuit.

"Often, when property managers are setting their prices manually, one of the things they've historically done is phone surveys. They call competitors to find out market data. RealPage is saying that particular practice poses a risk of collusion that is greater than what their software is doing. They said that they're using data in a legally compliant manner that would potentially eliminate the risk of collusion," Vogell said.

So is there anything that you can do or look out for as a renter? Guggenberger says, unfortunately, there's not much, and the reason is twofold.

"One, they (renters) don't know how property managers come up with their prices. Second, in many markets, especially the ones that run very hot, market concentration can be very high. So maybe you don't even have that much of a choice," he said.

But Vogell advised it might be worth just asking your leasing agent outright if they use a rent-pricing software like RealPage. The other option is to shop around and see if you can find competitive prices, particularly among smaller complexes owned by individual landlords.

"If a tenant can find a mom-and-pop type landlord, who is offering a small number of units and is somebody they can talk with directly, they may have a very different experience than living in one of these large buildings that is using the software," she said.

To read Vogell's full investigative report on ProPublica, visit its website.

You can also visit ABC13's website to submit your renters' rights questions.

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