Homebuyers finalizing any property have to pay a specific amount for booking the same. This is known as token money, advance payment, or earnest money, among other terms. While this payment cannot be avoided, buyers should ensure that it is officially acknowledged through the proof of payment. This ensures the security of the amount if the homeowner later refuses to sell his/her property.
Experts feel that in case token money is paid without any formal document or agreement being executed, then it should be paid through a bank transfer, cheque, or any other online method, ensuring that there is a clear trail and that a receipt is issued as acknowledgement of the same. An escrow account can also be used for making the payment aside from regular banking channels.
The Co-Founder and CBO-Asset Management Services & Data Intelligence, Square Yards, Anand Moorthy, feels that homebuyers can transfer token money into digital escrow accounts since they ensure a safer means of completing transactions. According to him, this procedure helps lower the risks of frauds while making sure that both parties are safeguarded. He also recommends going for a token money amount that is on the lower side, since it may be non-refundable at times. It may become non-recoverable in case of any deal cancellation.
While the agreement to sell is being drafted, the terms and conditions should be noted carefully. It should contain details like the price, date of possession, and other relevant information. It should be executed on a stamp paper of suitable value, and its rate should vary across states. Often people sign agreements on stamp paper with Rs. 50/100 valuations, understanding that even with insufficient stamping, they will finally pay the differential value during registration. The details of token money payments and payment methods should be included in the agreement and the buyer should retain a copy of this document.
Experts feel that 10-15% of the sale transaction is usually paid as the advance whenever the agreement to sell is executed. Buyers should add specific clauses to the agreement including the earnest money clause and the indemnity clause. According to Moorthy, the agreement should have this clause that holds sellers accountable for misrepresenting or providing false information on the property’s condition or title. He feels that this clause is important and helps protect buyers against any financial damages/losses that result from any property title defects or inaction on the seller’s part.
Other clauses that should be included are the description of property, price and payment terms and the possession date. There should also be the right to withdraw or call off. Moorthy feels that this clause will empower buyers to terminate deals in specific situations without having to deal with financial penalties. Exclusivity clauses and clarification on who will be responsible for paying property taxes, maintenance charges and arrears should also be included in the document. Anand Moorthy feels that the free from encumbrance clause is vital for making sure that sellers clear outstanding dues or encumbrances before initiating registration procedures for properties.
There should also be legal and tax liabilities, force majeure clauses, builder’s warranty and penalties for contract breaches. Anand Moorthy feels that there should be clearly defined penalties for breaches by both parties. He states that this clause will establish an agreement between them, stipulating that a predetermined penalty amount will apply upon withdrawing from the deal. He also adds that adding a special clause that is tailored to the buyer’s unique circumstances and property should be inserted while the agreement is being drafted. This will help tackle potential legal disputes after the sale deed is executed, enabling extra clarity and protection for both sellers and buyers.
He also adds that buyers should evaluate the credibility of the builder thoroughly via investigations of builder records and online forums. All essential documents like the encumbrance certificate, title deed, layout plans, and the purchase agreement should be examined. This scrutiny will be a safeguard that ensures that the property is free from any potential future disputes or litigation.
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Published Date: Nov 22, 2023
