We are sometimes asked about how Line 501 Excess Deposit works. In most cases,
depending on your settings for the closing, Standard Conveyancer
automatically fills in the amount on line 501 if the buyer's
deposit on Line 201 exceeds the real estate broker's commission.
The confusion is usually about why, the Excess Deposit is being
paid TO the seller, why it goes in the Reduction
in Amount Due to Seller section of the HUD-1.
This is the section about line 501 Excess Deposit from the HUD's
instructions:
Line 501 is used if the Seller's real
estate broker or other party who is not the settlement agent
has received and holds the deposit against the sales price
(earnest money) which exceeds the fee or commission owed to
that party, and if that party will render the excess deposit
directly to the Seller, rather than through the settlement
agent, the amount of excess deposit should be entered on
Line 501 and the amount of the total deposit (including
commissions) should be entered on Line 201.
In plain English, Excess Deposit is money that the real estate
broker is holding that is in excess of the amount he or
she needs to get paid by the seller. It's part of the buyer's
deposit -- in other words, part of what the buyer is paying
for the property -- so it should go to the seller. It the
seller gets that money from the broker, then the buyer needs
to pay that amount less at closing.
Using the Excess Deposit line on the HUD-1 means that the broker
is giving that money to the seller on their own -- almost
like a POC charge. It's not money that the seller gets at
closing, and since the seller is getting that amount of
the buyer's money, the amount is a Reduction in Amount Due
to Seller.
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