Is it possible for a seller to withdraw from a property transaction? What becomes of the token money in such a scenario?


When a buyer finalises a property for buying, the next step is to pay a token money to the seller.

What is token money?

Token money is the sum of money that a purchaser gives to the seller as a sign of their commitment to the real estate deal. Typically, it constitutes around 1-5% of the overall property value. This transaction will be officially documented by signing a notarised paper with legal significance. The token money is deposited into a third-party ESCROW account until the property transaction is finalized.

This finalizes the agreement and allows the buyer to move forward with other necessary tasks for purchasing a home, like applying for a mortgage and organizing registration paperwork.

But what happens if the seller decides to cancel the deal after receiving the token payment and needs to refund the buyer? This is what the purchaser has the ability to do.

Can a seller return the token money?

If a seller decides to cancel the deal after accepting the token money, they can give back the token money to the buyer along with a penalty stated in the notarised document. Once the token money is refunded, the agreement is terminated.

property token money

What if a buyer calls off the deal?

If a purchaser reneges on the agreement, in accordance with the notarised document, the seller has the right to withhold a portion of the payment and refund the remainder. In some cases, if the agreement is terminated right before completion or if the seller states that the earnest money will not be refunded upon cancellation, the seller might retain the full amount. In this situation, the purchaser is unable to deduct the amount as a tax write-off because it is considered a loss rather than an expense.

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RERA regulations on refund of token money

  • According to RERA, token money has been capped to a limit.
  • In case a buyer wants to withdraw from a deal, the developer

Tips to follow while paying token money 

Document: The buyer must demand evidence of token money being paid to the seller. This could be an official document which contains information like property specifics, a token payment, and the consequences of backing out of the deal by either the buyer or the seller.

Witness: Give the token money in front of a witness and, if possible, key in their signature in the document so that it can be used as proof in case of untoward incidents. 

Avoid paying token money in cash: Making an online bank transfer or paying by cheque is a more effective method to record the transaction. UPI is also a recognized type of payment record. POV

Purchasing a home comes with a high cost. It is always recommended to carefully consider your options in order to avoid any financial setbacks. When buying a property from a developer, make sure the developer is reputable and compliant with all laws and regulations. Before submitting the token money, it is wise to review the project specifics on the RERA website.

If you are considering purchasing a resale property, make sure to thoroughly inspect the property. After having the documents verified by a lawyer, you can then go ahead and provide the down payment..

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Frequently Asked Questions

Ans 1. Cash payments do not give any acknowledgement and can lead to legal issues.

Ans 2. Token money is referred to as bayana.

Ans 3. Token money confirms property booking; hence, most sellers insist on it.

Ans 4. In case a seller cancels a deal after taking the token money, the buyer can file a legal case asking for a refund and compensation.