Buying a property is a significant financial decision. One of the first steps in this journey often involves paying "Token Money." This seemingly small amount plays a crucial role in initiating the purchase process, indicating your serious intent to buy the property. This guide explains what token money is, its purpose, significance, the process involved, and important considerations before you hand it over. Understanding these aspects can help you navigate the initial stages of a property purchase with confidence.

Token money (also known as earnest money or booking amount) is a relatively small sum of money paid by a prospective buyer to a seller to demonstrate their genuine interest in purchasing a property. It serves as an initial commitment and is usually paid when both parties verbally agree on the fundamental terms of the sale, before a formal sale agreement is drafted. This money is essentially a deposit to hold the property while the buyer conducts due diligence and the legal paperwork is completed.

• Demonstrating Intent: The primary purpose is to show the seller that the buyer is serious about purchasing the property and is not just casually browsing.
• Securing the Property: Paying token money encourages the seller to take the property off the market and refrain from entertaining offers from other potential buyers for a specific period.
• Initiating the Transaction: It signifies the beginning of the purchase process, leading to the drafting of a formal agreement to sell.
• Building Trust: It establishes a level of trust between the buyer and seller, indicating a willingness to proceed in good faith.

• Legal Implications: While not a legally binding contract in itself, the payment and acceptance of token money can have legal implications, especially if documented in writing. A receipt or a preliminary agreement outlining the terms related to the token money is highly recommended.
• Negotiating Power: Paying token money can sometimes give the buyer a slight advantage in negotiations, as the seller is already committed to the transaction.
• Financial Commitment: While typically a small percentage of the total property value, it represents a financial commitment that the buyer is willing to make.
• Refund or Forfeiture: The agreement related to the token money should clearly state the conditions under which it will be refunded to the buyer or forfeited to the seller. Common reasons for forfeiture include the buyer backing out of the deal without a valid reason after the agreed-upon due diligence period.

• Initial Negotiation: Buyer and seller discuss the property's price and other terms (payment schedule, possession date, etc.).
• Verbal Agreement: Once a preliminary agreement is reached, the buyer offers to pay token money.
• Token Money Payment: The buyer pays the agreed-upon amount to the seller. It's crucial to obtain a receipt or written acknowledgement from the seller stating the amount paid, the date, the property address, and the terms related to the token money (refundability, forfeiture, validity period).
• Agreement to Sell: A formal "Agreement to Sell" is drafted by lawyers, outlining all terms and conditions of the sale, including the treatment of the token money (how it will be adjusted in the final payment).
• Due Diligence: The buyer conducts due diligence (property valuation, legal verification of documents, etc.) within the timeframe specified in the Agreement to Sell.
• Final Sale: If the due diligence is satisfactory and all conditions are met, the sale is completed, and the token money is adjusted against the final purchase price. If the sale does not proceed, the terms of refund or forfeiture as mentioned in the agreement will apply.

Token money is a vital first step in a property purchase. Understanding its purpose, significance, and the process involved is crucial for both buyers and sellers. Always ensure that the terms related to token money are clearly documented in writing to avoid potential disputes later. Seeking legal advice before paying token money can provide added protection and ensure a smoother transaction.