What is Token Money in Property Purchase?

When one sets out to buy a property, one gets to hear several terms and processes, and one such term that pops up frequently is the term Token Money, sometimes also called Token Amount, or Bayana. So, what does token money mean, and how does it matter in property purchase? When to pay the token amount and is token money refundable? Let us throw light on all these concerns regarding token money in property purchases.

What is Token Money?

Buying or selling a property is a legal process and just to ensure good faith, a small percentage of the total property cost is paid by the buyer to the seller, which is termed as the Token amount. It is paid as a commitment to the deal before signing the final agreement and signifies the buyer’s serious intent to buy the property. It is paid under a preliminary contract called the token money agreement that states the amount paid as a token or bayana and the final payment schedule along with the conditions for refund or forfeiture. Token money can range from a few thousand to several lakhs depending on the value of the property.

What are the Benefits of Paying Token Amount for a Property?

The buyer and seller sign a Token Money Agreement for Property to secure the deal, with the buyer paying a nominal amount to confirm their intent to purchase the property. Let us proceed further to understand its benefits. The three main benefits of paying a token amount when purchasing a property are listed below:

1. Secures the Deal: Paying token money for a property in a way secures the deal confirming the buyer’s serious intent to purchase it by temporarily reserving it with a small amount.
2. Locks in the Price: With a token amount, the buyer can lock in the price and protect against property price fluctuations, thereby preventing the seller from increasing the price later.
3. Streamlines the Property Purchase Process: The token money agreement kickstarts the buying process for ina property and makes way for the final payment and legal formalities by both parties.

Suggested read: Margin Money in Home Loans

When is the Token Money Paid?

It is equally important to understand when to pay the token money for a property. The buyer can pay the token amount at different times depending on the acceptable terms between both the parties such as:

1. Token Money At the Time of Verbal Agreement: It is most commonly paid at the time when both parties agree upon the pricing and other terms of the transaction in a verbal agreement.
2. Token Money At the Time of Accepting the Offer: Once the buyer pays the token amount, the seller brings a lawyer or a third-party escrow agent to complete the transaction.

What are the Token Money Refund Rules?

It is not necessary that a property deal may unfold as expected, so does that mean the token amount once paid by the buyer will not be recovered? No matter whether the buyer or the seller backs out of a property deal, the bayana or the token amount is refunded. To get a better understanding of this, we recommend you to go through the Token money refund rules by the Real Estate Regulatory Authority (RERA):

1. Token Money Refund Rule Provision for Buyers: RERA permits homebuyers to cancel a property deal regardless of whether it is the default from the builder or the developer side. In such scenarios, the builder must refund 100% token money to the buyer within 45 days of the date of the property deal cancellation.
2. Token Money Refund Rule Provision for Sellers/ Developers/Builders: If the developer is not at fault and the buyer cancels within 45 days of receiving the allotment letter, then the developer has the right to deduct a nominal amount as a penalty from the token money before paying the refund to the buyer.

How to Calculate the Token Money for a Property Purchase?

There is no mandate regarding a fixed amount to be paid as a token money for a property purchase. This amount may vary from case to case and totally depends on the mutual understanding between the seller and buyer. It usually ranges between 1% to 5% of the total property value but can be negotiated. To calculate, multiply the agreed percentage by the property price. For example, if a property costs ₹50 lakh and the token money is 2%, the amount would be ₹1 lakh. This amount is typically adjusted in the final payment.

How is Token Money Different from a Down Payment?

It is at the same time crucial to understand the difference between token money and a down payment because many times homebuyers get confused between these two forms of payments done while purchasing a property. Token money is a small, initial amount paid by a buyer to indicate serious intent to purchase a property or asset. It is usually refundable or adjustable in the final payment and does not legally bind the buyer to complete the transaction. In contrast, a down payment is a substantial upfront sum paid as part of the total purchase price, often in real estate or vehicle purchases. It confirms commitment and is usually non-refundable. While token money signals interest, a down payment secures the transaction’s financial foundation. In clear words, a down payment is the amount a buyer pays upfront when buying a property, whereas, token money is just a small token of it.

To Sum Up

Token payment or token money is a fundamental aspect of property transactions helping buyers and sellers seal the deal in good faith. However, it is important to approach this step of paying token money with caution after seeking professional advice. Understanding the token amount agreement, its legal implications, and best practices can ensure a hassle-free property transaction experience.

FAQs about Token Money in Property Purchase