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What I'm having a hard time understanding is why RealPage cared about "compliance" in the first place - do they charge as a % of rent? That seems nuts, I would

by tqi 2y ago

What I'm having a hard time understanding is why RealPage cared about "compliance" in the first place - do they charge as a % of rent? That seems nuts, I would imagine landlords hate that. If not % of rent then I can't understand why the company would want rents to be higher across the board.

ZeoVII 2y ago
IMO, because that way they can claim to landlords they get target ocupancy rates with the higher price; if one landlord in the area knows the price others get, he could try to get higher occupancy rate by lowering his price, aka "competition", by requiring "compliance" to RealPage prices, they are effectively coordinating and price fixing the market, which is the ilegal part. After all, landlords could see regular posing on other channels and adjust their prices in the "normal" way.
lobsterthief 2y ago
Because then they can say “hey landlord, on average if you list through us you can charge X% higher rents than our competitors”
codedokode 2y ago
Maybe they want to attract landlords to sign up, and making rent raise works better than any advertisement.
andrewmutz 2y ago
I built software for this industry (not at realpage) for 10+ years and can explain why price compliance is a big deal. The reason is that there is a fundamental principal vs. agent problem in the fee-based property management industry. Usually an investor buys a building and then hires a separate corporation called a fee-based property management company to manage the property. The management company gets to keep 8-10% of the rents that come in exchange for doing all the management work. (there are situations where the owner and the manager are the same corporation but they are less common and are called owner-operators) The fee-based management company and the building owner have different interests. The building owner wants to maximize net operating income, which usually means maximizing revenue. The fee based manager wants to maximize their earnings, which is the 8-10% of the rents minus paying for all the management work to happen. On first glance you might think these are similar interests, but when it comes to choosing the price they are not the same. If a rental price is optimal, it takes a bit of work to rent it out. The housing unit will sit on the market for a little bit and be shown to a lot of people before you find someone willing to pay the price. If, on the other hand, the price is 10% below the optimal price, it will take very little work to rent out and will be taken by the first person who comes to look at it. In this case "little work" means the management company can save money by paying fewer staff members. So, property owners want optimal prices and property managers want prices that are slightly lower than that. Revenue management algorithm compliance is a solution to this principal agent problem. The building owner insists on it being used by the management company because he doesnt trust the management company to choose prices. He doesnt trust the management company to choose the price because they are motivated to lower the price in order to reduce their workload. High price algorithm compliance is important to realpage because it is how the owner makes sure the manager is choosing prices that maximize the owners interests, rather than the management company's interest. And the owner is the person who chooses to enforce the pricing algorithm, and thus the true customer of realpage when it comes to revenue management algorithms.
- doctorpangloss 2y ago
  Yeah, but listen brother. Do you want housing prices to be lower or higher? Do you want rents to be lower or higher? Which is best for you? What is best for the country? Your experience is really valuable in the context of what this action is meant to address, which is a potentially irreconcilable political interest in low rents for all, high prices for some, low prices for others, which could be achieved many ways.
- tqi 2y ago
  > the owner is the person who chooses to enforce the pricing algorithm Very interesting - I can't find anything about this on their website, but assuming that is the case I feel like this is the only explanation so far in this thread that makes sense. Other explanations in this thread (marketing, optimizing for all the customers) fall short to me because (as far as I can tell) there is no reward / punishment mechanism. This is not to say that the effect isn't the same though, driving prices up. And the other quotes from internal documents certainly hint that there might have been some awareness of this as well.
  - andrewmutz 2y ago
    To the best of my understanding I think the technology does drive up prices, but not in an anticompetitive way. I know people get really passionate about this, so I don't want to argue with people on hacker news about it, but to the best of my understanding this is what is happening: Rental prices in the USA keep going up primarily due to a housing shortage. Revenue optimization algorithms like realpage's do genuinely increase rents by about 2-5%, because without them fee-based property managers lower rents below market-clearing price in order to make it easier on themselves. The increased rent that comes from using these algorithms is, in my opinion, not really anti-competitive. If you only used public information for the pricing algorithm, you'd get largely the same prices out of the system. In almost all rental markets, algorithmic pricing of any sort doesn't have high enough market share to see success by anticompetitive price-fixing, since most suppliers of housing don't use it. Apartment rents are crazy high because there simply isnt enough housing, and we dont let people build enough dense housing near jobs. Going after Realpage, or blackrock, or landlords, or AirBnB is just trying to find a scapegoat, when the hard truth is we need to let people build more housing near where the jobs are.
jacobgkau 2y ago
RealPage's customers are landlords who want to maximize their rent prices. If some landlords look at the data and offer lower prices, that takes business away from the rest of RealPage's customers-- it makes RealPage less valuable for landlords and makes buying into RealPage essentially paying to give up valuable data that other landlords will use against you. Forcing compliance ensures all of RealPage's customers get to raise their rents while retaining their renters, which means landlords are making a safe bet when using RealPage-- and the only downside is real people paying higher rent.
outop 2y ago
They need landlords to stick to the numbers they pass on, in order that those numbers remain valuable to all of their other landlord clients. Suppose that you're a big landlord in some area, such that your submitted prices can affect rents for that property type across the area. You might be tempted to submit high prices, wait for your competitors to follow suit, and then reduce your actual rents to undercut them. They (the competitors) naturally wouldn't be happy with this. So RealPage has to be able to show people that they know their numbers are the actual ones.
mjcl 2y ago
Compliance was important because the product (RealPage's AIRM nee YieldStar) works by holding prices higher for longer than the average manager would. The RealPage pricing software is eye-watering expensive and can only be justified if it results in significantly higher revenue.
A1kmm 2y ago
I don't know about RealPage in particular. But the dynamics could be similar to (or an example of) a cartel. Cartels generally don't tolerate a cartel member undercutting their prices. Cartels are effectively in a prisoner's dilemma situation: * If no one defects (i.e. everyone sticks to the cartel price), the cartel members get the highest price, and get the most profits. * If one party defects and goes slightly below the cartel price, while everyone else stays loyal to the cartel pricing, the defecting party gets the most business at a price only slightly below the cartel price, and makes lots of profit. * If all parties defect, there is no cartel any more, and profits are reduced. So cartel members do not want other cartel members to defect. Cartel organisers get paid because the value of the cartel is only there if defection (i.e. not sticking to the cartel price) is controlled - so it is also in the interest of the organisers to prevent this.

by tqi 2y ago

ZeoVII 2y ago

IMO, because that way they can claim to landlords they get target ocupancy rates with the higher price; if one landlord in the area knows the price others get, he could try to get higher occupancy rate by lowering his price, aka "competition", by requiring "compliance" to RealPage prices, they are effectively coordinating and price fixing the market, which is the ilegal part. After all, landlords could see regular posing on other channels and adjust their prices in the "normal" way.

lobsterthief 2y ago

Because then they can say “hey landlord, on average if you list through us you can charge X% higher rents than our competitors”

codedokode 2y ago

Maybe they want to attract landlords to sign up, and making rent raise works better than any advertisement.

andrewmutz 2y ago

I built software for this industry (not at realpage) for 10+ years and can explain why price compliance is a big deal. The reason is that there is a fundamental principal vs. agent problem in the fee-based property management industry. Usually an investor buys a building and then hires a separate corporation called a fee-based property management company to manage the property. The management company gets to keep 8-10% of the rents that come in exchange for doing all the management work. (there are situations where the owner and the manager are the same corporation but they are less common and are called owner-operators) The fee-based management company and the building owner have different interests. The building owner wants to maximize net operating income, which usually means maximizing revenue. The fee based manager wants to maximize their earnings, which is the 8-10% of the rents minus paying for all the management work to happen. On first glance you might think these are similar interests, but when it comes to choosing the price they are not the same. If a rental price is optimal, it takes a bit of work to rent it out. The housing unit will sit on the market for a little bit and be shown to a lot of people before you find someone willing to pay the price. If, on the other hand, the price is 10% below the optimal price, it will take very little work to rent out and will be taken by the first person who comes to look at it. In this case "little work" means the management company can save money by paying fewer staff members. So, property owners want optimal prices and property managers want prices that are slightly lower than that. Revenue management algorithm compliance is a solution to this principal agent problem. The building owner insists on it being used by the management company because he doesnt trust the management company to choose prices. He doesnt trust the management company to choose the price because they are motivated to lower the price in order to reduce their workload. High price algorithm compliance is important to realpage because it is how the owner makes sure the manager is choosing prices that maximize the owners interests, rather than the management company's interest. And the owner is the person who chooses to enforce the pricing algorithm, and thus the true customer of realpage when it comes to revenue management algorithms.

doctorpangloss 2y ago
Yeah, but listen brother. Do you want housing prices to be lower or higher? Do you want rents to be lower or higher? Which is best for you? What is best for the country? Your experience is really valuable in the context of what this action is meant to address, which is a potentially irreconcilable political interest in low rents for all, high prices for some, low prices for others, which could be achieved many ways.
tqi 2y ago
> the owner is the person who chooses to enforce the pricing algorithm Very interesting - I can't find anything about this on their website, but assuming that is the case I feel like this is the only explanation so far in this thread that makes sense. Other explanations in this thread (marketing, optimizing for all the customers) fall short to me because (as far as I can tell) there is no reward / punishment mechanism. This is not to say that the effect isn't the same though, driving prices up. And the other quotes from internal documents certainly hint that there might have been some awareness of this as well.
- andrewmutz 2y ago
  To the best of my understanding I think the technology does drive up prices, but not in an anticompetitive way. I know people get really passionate about this, so I don't want to argue with people on hacker news about it, but to the best of my understanding this is what is happening: Rental prices in the USA keep going up primarily due to a housing shortage. Revenue optimization algorithms like realpage's do genuinely increase rents by about 2-5%, because without them fee-based property managers lower rents below market-clearing price in order to make it easier on themselves. The increased rent that comes from using these algorithms is, in my opinion, not really anti-competitive. If you only used public information for the pricing algorithm, you'd get largely the same prices out of the system. In almost all rental markets, algorithmic pricing of any sort doesn't have high enough market share to see success by anticompetitive price-fixing, since most suppliers of housing don't use it. Apartment rents are crazy high because there simply isnt enough housing, and we dont let people build enough dense housing near jobs. Going after Realpage, or blackrock, or landlords, or AirBnB is just trying to find a scapegoat, when the hard truth is we need to let people build more housing near where the jobs are.

jacobgkau 2y ago

RealPage's customers are landlords who want to maximize their rent prices. If some landlords look at the data and offer lower prices, that takes business away from the rest of RealPage's customers-- it makes RealPage less valuable for landlords and makes buying into RealPage essentially paying to give up valuable data that other landlords will use against you. Forcing compliance ensures all of RealPage's customers get to raise their rents while retaining their renters, which means landlords are making a safe bet when using RealPage-- and the only downside is real people paying higher rent.

outop 2y ago

They need landlords to stick to the numbers they pass on, in order that those numbers remain valuable to all of their other landlord clients. Suppose that you're a big landlord in some area, such that your submitted prices can affect rents for that property type across the area. You might be tempted to submit high prices, wait for your competitors to follow suit, and then reduce your actual rents to undercut them. They (the competitors) naturally wouldn't be happy with this. So RealPage has to be able to show people that they know their numbers are the actual ones.

mjcl 2y ago

Compliance was important because the product (RealPage's AIRM nee YieldStar) works by holding prices higher for longer than the average manager would. The RealPage pricing software is eye-watering expensive and can only be justified if it results in significantly higher revenue.

A1kmm 2y ago

I don't know about RealPage in particular. But the dynamics could be similar to (or an example of) a cartel. Cartels generally don't tolerate a cartel member undercutting their prices. Cartels are effectively in a prisoner's dilemma situation: * If no one defects (i.e. everyone sticks to the cartel price), the cartel members get the highest price, and get the most profits. * If one party defects and goes slightly below the cartel price, while everyone else stays loyal to the cartel pricing, the defecting party gets the most business at a price only slightly below the cartel price, and makes lots of profit. * If all parties defect, there is no cartel any more, and profits are reduced. So cartel members do not want other cartel members to defect. Cartel organisers get paid because the value of the cartel is only there if defection (i.e. not sticking to the cartel price) is controlled - so it is also in the interest of the organisers to prevent this.