What is Token Money in Property Purchase?

When buying a property, one of the first financial transactions involved is paying token money. This initial payment plays a crucial role in securing the deal between the buyer and seller. But what exactly is token money, and why is it important? This blog explores the meaning, significance, legal aspects, and common concerns related to token money in property transactions.

Token money is an advance amount paid by the buyer to the seller as a commitment to purchase a property. It signifies that the buyer is serious about the transaction, and in return, the seller agrees to reserve the property for the buyer. This payment is typically made before the formal agreement and is deducted from the total property price.

Token money is a widely accepted practice in real estate transactions, whether for residential, commercial, or investment properties. However, it is crucial to ensure transparency and proper documentation to avoid disputes.

• Secures the Deal: By paying token money, the buyer ensures that the seller does not negotiate with other potential buyers. It helps the buyer gain some exclusivity on the property for a limited period.

• Demonstrates Serious Intent: Property transactions involve large sums of money. Paying token money shows the seller that the buyer is committed to completing the purchase.

• Initiates Legal Processes: Once token money is paid, both parties can start working on legal documentation such as sale agreements, due diligence, and loan approvals.

• Encourages Fair Negotiations: Sellers often take negotiations more seriously when token money is involved, ensuring that the terms of the deal are mutually beneficial.

The amount of token money varies depending on the property price and market conditions. Typically, it ranges between 1% to 5% of the property value, but in high-demand markets, sellers may request a higher amount. For example, if you are purchasing a property worth ₹1 crore, token money may range from ₹1 lakh to ₹5 lakh.

1. Receipt and Documentation:

Always ensure that you get a written receipt from the seller when paying token money. The receipt should clearly mention:

1. • Amount paid
   • Date of payment
   • Property details
   • Seller’s name and signature
   • Terms and conditions of refund (if applicable)

2. Agreement of Sale:

In many cases, an agreement of sale is drafted after paying token money. This agreement outlines the complete terms of the property transaction, including the timeline for full payment.

3. Refund Policy:

Before paying token money, clarify the refund policy in case the deal does not go through. Some sellers may deduct a portion of the token money as compensation for the time the property was off the market.

4. Legal Disputes:

If there is a disagreement regarding token money refund, legal action can be taken. Courts often consider whether both parties fulfilled their contractual obligations before ruling on refunds.

Token money is an essential step in real estate transactions, providing security to both buyers and sellers. However, it is crucial to handle this transaction carefully by ensuring proper documentation, verifying the seller’s credibility, and clarifying refund terms. By following these best practices, buyers can safeguard their investment and avoid potential risks.

If you are planning to buy property, always work with trusted real estate consultants who can guide you through the process and ensure a smooth transaction.