A Wave of Litigation Might Transform Real Estate Technology

By Franco Faraudo

Technology develops faster than our legal system moves. Eventually, though presidents get set and regulations get penned that try to level what can be a very uneven playing field. That has been true for decades now and has caused a number of really impactful changes to technology. Back in 2000 a US District Judge concluded that it wasn’t fair for Windows (the operating system) to limit its user to only Microsoft products. The result was an order for the company to split into two. While this never happened (Microsoft appealed and eventually settled), it did result in an agreement to make it easier for Windows users to download competitors programs. These types of large scale lawsuits/DOJ investigations are happening now for many large PropTech companies and, if history repeats itself, could cause some sweeping changes to the real estate technology landscape. 

On the residential side of the industry there is an ongoing battle between now defunct brokerage REX and Zillow. This case revolves around the way that Zillow classifies non-MLS listings at “other listings” in a separate tab. REX’s complaint is that this unfairly downgrades listings that do not appear on the MLSs and is anti-competitive. The original lawsuit also included the National Association of Realtors but a judge recently dismissed the organization from the trial. Even if there was no evidence that the NAR was involved in Zillows “two tab” system, the suit, which claims false advertising, unfair or deceptive trade practices, and defamation is still set to proceed starting September 8th.

Commercial PropTech is also watching a legal battle play out between CoStar and CREXI. This suit claims that CREXI stole proprietary information (namely photographs of buildings) from CoStar’s database in order to build its platform. This might seem similar to another high-profile lawsuit against CoStar and Xceligent because, well, it is. Xceligent was also charged with stealing CoStar’s data via a foreign third party tech company. Ultimately CoStar won that case and caused Xceligent to go out of business entirely. This case is still in the discovery phase and so won’t go to trial until October 2024 at the earliest, so stay tuned for some more legal drama.

Then there is what might be the most important case in PropTech right now, the class action lawsuit against RealPage for its rent pricing software. I have written about this case a lot and have had a chance to interview the man behind the research being used in court a few times (you can read them here and here). This lawsuit is impactful for a number of reasons. First, there has been a lot of media attention around it. People are upset about escalating rent prices and many have latched onto this story as one of the causes (the case was brought up thanks in part to an investigative article by ProPublica). The second reason this is important is because it is not only RealPage that is named in the suit but some of its users like Graystar, Lincoln Property Co., and Trammel Crow. The last reason to keep this case on your radar is that a number of politicians have recommended that the Department of Justice take a look at the situation, which could possibly lead to antitrust actions similar to what happened to Microsoft in 2000.

All of these cases will be playing out in front of us in the next few years and each has major implications for what tech companies are allowed and not allowed to do with their market dominance. But this is just the beginning. You might have heard about some of the suits being brought up by IP owners like Getty Images and The New York Times against AI developers for using proprietary content to train their algorithms. I predict that we will see something similar with property data. Companies are trying to use AI to help them make better investment decisions and in order to do that they will need data, lots of it. If they happen to scrape that data from proprietary sources (which is almost necessary at the scale needed for AI) then it might spark a similar legal action by the owners of the data. A number of large tech companies have emerged as the leaders of PropTech but, thanks to a lot of unanswered legal questions, they might not stay that way for long.



States often bring antitrust cases on behalf of their citizens, here is a cool map showing the largest antitrust cases brought up by each state in the country.

Good reads

All the tea

If you are like me then you have been following the drama happening with the huge Chinese property firms. The problem is, it can sometimes be hard to understand since their politics and economy is so different from ours. Here is a great article that breaks down exactly what is happening in the world’s second largest economy.

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There are plenty of things that are driving up costs for buildings. Besides labor and material prices going up there are also increasing costs for real estate associated with climate change to account for.

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We are finally starting to see reports about increasing sales volumes in commercial real estate. The uptick in transactions is due to sellers finally agreeing to lower their prices to represent the current market. This is bad news for property owners looking to sell but good news for the real estate service firms that make money off of these transactions.

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