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Legal Updates for Real Estate E&O Liability

Invoking the Mandatory Mediation Clause Against Buyers – A Beneficial Strategic Tactic

Legal Updates for Real Estate E&O – November 2025

November 1, 2025

by Gregory P. Graham

When facing claims, Pennsylvania real estate agents too often view the mandatory mediation paragraph found within the Standard Agreement for the Sale of Real Estate as little more than boilerplate. In practice, however, this clause can be a valuable and strategic tool for the successful defense of claims. Rather than overlooking such a useful tool, real estate agents should consider invoking the mandatory mediation provision to obtain significant advantages in cost management, liability clarity, and settlement posture.

The mandatory mediation provision typically contains the following language:

Buyer and Seller will submit all disputes or claims that arise from this Agreement, including disputes and claims over deposit monies, to mediation. Mediation will be conducted in accordance with the Rules and Procedures of the Home Sellers/Home Buyers Dispute Resolution System, unless it is not available, in which case Buyer and Seller will mediate according to the terms of the mediation system offered or endorsed by the local Association of Realtors®. Mediation fees, contained in the mediator’s fee schedule, will be divided equally among the parties and will be paid before the mediation conference. This mediation process must be concluded before any party to the dispute may initiate legal proceedings in any courtroom, with the exception of filing a summons if it is necessary to stop any statute of limitations from expiring. Any agreement reached through mediation and signed by the parties will be binding. Any agreement to mediate disputes or claims arising from this Agreement will survive settlement.

This section precludes either the buyer or seller from initiating a legal action without first attempting to mediate the dispute. The only exception identified within the provision allows for the filing of a summons to halt the application of any potential statute of limitations. 

At first glance, the provision would not appear to be available to agents involved in the transaction; however, the language is clear that all disputes that arise from the agreement are subject to the mandatory mediation requirement. Upon receipt of a pre-suit claim, real estate professionals should consider invoking this provision to bring all claims and involved parties to mediation. Alternatively, if a lawsuit has already been filed, real estate agents should consider the merits of filing a Motion to Stay and to Compel Mediation pursuant to the provision. 

There are numerous benefits to do so. 

Cost Savings Through Early Resolution
Pre-suit mediation offers a controlled, confidential, and relatively inexpensive forum for resolving the dispute while the parties are still evaluating their willingness to engage in the costs of discovery, depositions and motion practice. By invoking the mediation provision promptly after a buyer identifies a pre-suit claim or upon the receipt of a complaint, an agent and their counsel can participate in a structured discussion aimed at resolution without the procedural overhead of court involvement. Even if mediation does not result in a full settlement, narrowing the issues can dramatically reduce later litigation expenses. Insurers can separately consider the benefits of early mediation for their insureds, as it signals proactive risk management and can help avoid unnecessary defense costs.

Clarifying Responsibility Through Information Exchange
Claims made by the buyer against real estate agents are often defended on the grounds that the seller’s or buyer’s own actions are the cause of the buyer’s damages. Forcing those parties to mediation encourages the early and informal exchange of key documents—inspection reports, disclosure forms, repair records—that can help inform the parties’ assessment of who bears actual responsibility. When the facts are developed cooperatively, rather than through adversarial discovery, the mediation process often highlights that the real estate agent’s role was limited to communication rather than concealment. This can refocus the dispute toward the truly responsible party and may even resolve the matter without further involvement of the agent. 

Managing Plaintiff Expectations for Future Negotiations
Even if resolution cannot be achieved during the mediation process, a mandatory attempt early in the life of a claim also serves as an effective opportunity to set realistic expectations for a buyer-plaintiff’s potential recovery. Through the mediator’s neutral perspective, plaintiffs often gain a clearer understanding of the legal limits on agent liability, the availability of defenses—such as the reliance on seller representations—and the challenges of proving causation and damages, especially if the buyer waiver or failure to inspect questions are involved. Even if mediation does not fully settle the case, it can temper inflated expectations and create a more productive environment for subsequent negotiations.

In short, mediation under the Pennsylvania Standard Agreement is not merely a procedural requirement—it is a strategic defense opportunity. By embracing early mediation, real estate agents can reduce costs, clarify liability and shape the tone of any future dispute toward resolution rather than escalation. 

Legal Update for Real Estate E&O – November 2025, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We would be pleased to provide such legal assistance as you require on these and other subjects when called upon. ATTORNEY ADVERTISING pursuant to New York RPC 7.1 Copyright © 2025 Marshall Dennehey, all rights reserved. No part of this publication may be reprinted without the express written permission of our firm. For reprints or inquiries, or if you wish to be removed from this mailing list, contact tamontemuro@mdwcg.com.

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Sheetz filed an administrative appeal pursuant to R.C. 2506 in the Montgomery County Court of Common Pleas, and two months later filed a complaint for damages and declaratory relief under 42 USC § 1983 as a takings action with the city, city council, and other objectors as improper takings and a violation of due process, as well as interference with business and contractual relationship. The city and city council removed the § 1983 action for damages to federal court. Montgomery County Court of Common Pleas reversed the city council’s denial, and allowed the Sheetz project to move forward. Upon that ruling, the federal court issued a show-cause order questioning whether the § 1983 action was barred by the doctrine of res judicata via claim preclusion (which includes all theories of recovery).  Sheetz argued that Ohio courts of common pleas do not have authority to award damages or declaratory relief as party of the R.C. Ch. 2506 appeal, therefore res judicata could not be triggered to apply to the § 1983 action. Additionally, Sheetz moved to certify the issue to the Ohio Supreme Court, citing differing results between the second and sixth districts on this same issue. Centerville approached the question, not from a claim preclusion standpoint, but from the holding in Grava v. Parkman, Twp which states that a final judgment rendered on the merits bars all subsequent action based on the same transaction or occurrence.  In yet another approach, an objector argued that claim preclusion was satisfied because Sheetz could have raised its damages claims in the administrative appeal – Sheetz disagrees. In their analysis, the Supreme Court of Ohio broke down the elements of a claim preclusion analysis: 1) a prior final, valid decision on the merits by a court of competent jurisdiction; (2) a second action involving the same parties, or their privies, as the first; (3) a second action raising claims that were or could have been litigated in the first action; and (4) a second action arising out of the transaction or occurrence that was the subject matter of the previous action. The Court held that R.C. Ch. 2506 does not permit a party to argue damages as R.C. Ch. 2506 limits the common pleas jurisdiction as if it were sitting on appeal, and therefore can only affirm, reverse, vacate, or modify the appealed order, or can remand the case to the administrative body. Further, the Court held that Grava’s conclusion that a final judgment precludes additional litigation for different relief is inapplicable under this fact pattern because it was meant only to apply to those matters in which the plaintiff brings the exact same case twice, but for new relief. The Court found Grava was inapplicable because Sheetz could have requested damages or declaratory relief in the R.C. 2506 appeal. Therefore, Grava would be nothing more than dicta if it even did apply. Going further, the Ohio Supreme Court disavowed Sixth Circuit precedent which, in reliance on Grava and other district court decisions, permitted an owner to seeking relief under 42 U.S.C. § 1983 alongside an administrative appeal. See Moore v Hiram Twp., 988 F.3d 353 (6th Cir.2021). The Ohio Supreme Court found that the Sixth Circuit had disregarded a critical decision in Community Concerned Citizens, Inc. v. Union Twp. Bd. of Zoning Appeals, 1993-Ohio-115, which clearly held that a R.C. Ch. 2506 appeal cannot be combined with a complaint seeking other claims for relief. Id. at ¶ 11. To that end, the Ohio Supreme Court has determined that the decisions Moore relied on (outside of Grava) are no longer good law, and that Moore was wrongly decided. The decision draws a clear procedural boundary: Chapter 2506 provides judicial review of an administrative decision, not a forum for independent claims seeking affirmative relief. Although Grava may place claims arising from a single transaction within the potential scope of claim preclusion, those claims are not barred unless the complete claim-preclusion test is satisfied. Because Sheetz could not have pursued damages or declaratory relief in its Chapter 2506 appeal, the separate action was not precluded. 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