What is Token Money in Property Purchase?

In real estate transactions, token money is an initial sum paid by the buyer to the seller as a gesture of goodwill and intent to purchase the property.
It serves as a confirmation that the buyer is serious about the deal, and in return, the seller typically halts negotiations with other potential buyers.
Token money is a standard practice in property transactions across India, and its terms are often agreed upon during the initial discussions.
Let’s explore more about token money, its payment, refund policies, and the legal implications associated with it.
Read More : Real Estate Investment Advisory 

What is Token Money in Real Estate?

Token money in real estate acts as a preliminary deposit to secure a property for a buyer.
It’s not the same as the down payment, as it is a smaller amount paid upfront and is often followed by a more significant payment, such as the earnest money or advance payment.
The key points about token money:
1. It establishes trust between the buyer and seller.
2. It is typically a non-refundable amount unless agreed otherwise in writing.
3. It locks the deal for both parties until formal agreements are made.

When is Token Money Paid?

Token money is usually paid after the buyer expresses interest in purchasing the property and negotiates with the seller to finalize the terms of the deal.
1. After Property Inspection: Buyers often pay token money once they are satisfied with the property’s condition and legal status.
2. Preliminary Agreement Stage: It is paid before signing a formal agreement to buy the property.

How Much Money Has to Be Paid as a Token Amount?

The token amount is typically a small percentage of the property’s total cost.
While there is no fixed rule, it often ranges from:
- 10% to 20 % of the property value for residential properties.
- For high-value properties, the percentage may be negotiated further.
It’s essential to discuss and mutually agree upon the token amount before payment.

Is Token Money Refundable?

Whether token money is refundable or not depends on the terms agreed upon by the buyer and seller.

Cases Where Token Money is Refundable:

1. If the seller backs out of the deal without valid reasons.
2. If legal or technical issues arise that render the property ineligible for sale.

Cases Where Token Money is Non-Refundable:

1. If the buyer decides to cancel the deal without valid reasons.
2. If it is explicitly mentioned in the agreement that the token money is non-refundable.

How to Pay Token Money?

Paying token money involves a few straightforward steps:
1. Mode of Payment: It can be paid via cash, cheque, bank transfer, or online payment.
2. Obtain a Receipt: Ensure the seller provides a signed receipt acknowledging the token money.
3. Draft a Written Agreement: Clearly state the amount, refund policy, and timeline in writing.
4. Consult a Lawyer: It’s always advisable to have a legal expert review the agreement to avoid disputes later.

How Much Do I Have to Pay as Token Money?

The amount of token money depends on several factors:
1. Type of Property: Residential properties usually require a smaller token amount compared to commercial properties.
2. Market Conditions: In competitive markets, buyers may offer higher token amounts to secure the deal.
3. Negotiation: Both parties can negotiate the token amount based on mutual understanding.
For example:
For a property worth ₹50 lakhs, the token amount may range between ₹5,00,000 and ₹10,00,000.

Can a Seller Return the Token Money?

Yes, a seller can return the token money under specific conditions:
1. If the seller cancels the deal: They are obligated to return the token money as per the agreement.
2. If the property has legal issues: The seller must refund the token amount if the property cannot be legally sold.
However, if the seller decides to keep the token money without valid reasons, the buyer can take legal action to recover it.

Conclusion

Token money is a crucial element in property transactions as it formalizes the buyer's intent and provides the seller with assurance.
However, it’s essential to have clear terms regarding the amount, payment method, and refund policy to avoid disputes.
Whether you’re a buyer or seller, always document the token money agreement and consult legal experts to ensure a smooth and secure property deal.
If you’re considering buying or selling property, reach out to 2A Company for professional assistance and trustworthy guidance!
Explore Our Latest Listing : Buy Land In Siolim