We get a lot of questions from people new to the title industry 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.

As always, please call 781-324-0550 if you need any help.