What Is a Security Deposit?
The experience of owning a home has a number of marked differences from the experience of renting a home, including the way finances work in each scenario. If you have ever rented an apartment, you may have paid a security deposit- but what exactly does that mean? Whether you are thinking of renting out your own home or deciding if you should look at new homes for sale in Orlando, FL, understanding this common rental formality can help you think through all the financial implications of your decisions.
In simple terms, a security deposit is a sum of money that a new resident pays to their landlord or property management company upon signing a lease and moving into a home. The payment is meant to act as insurance against residents who may be unpredictable or troublesome. They will keep your money to use in case you damage the apartment, skip payments, or break your lease and they need to cover costs. This also acts as an incentive for you to be a good tenant, as you are at risk of losing a large sum of money.
When you move out, if you have not caused any significant damage or amassed a balance, you will be refunded your security deposit. Be sure to read your lease in advance and understand exactly what would cause you to lose this money so that you can take the appropriate steps during your time at a residence.
Some places will also charge a pet deposit, which may operate in the same way as a security deposit or may be non-refundable depending on the terms of your lease.
Average Cost of a Security Deposit
Security deposits will vary in amount based on a range of factors, with the most influential being the location where you are renting a property. While most states don’t have a limit on security deposits, some will. For example, in Kansas, an unfurnished apartment cannot have a security deposit that exceeds one month’s rent, while a furnished apartment cannot exceed one and a half months’ rent. In addition to state and local laws, local rates will determine the amount of your deposit, as well as how in-demand housing is in the location.
Your security deposit may vary compared to even other residents in the same complex based on your credit score. As a part of a rental application, most landlords and property management firms will pull your credit score as a way to gauge the risk of renting to you. The lower your score, the riskier they will consider you, which can increase your security deposit. Many landlords will have a standard score that they use as a baseline, and if an applicant is not at or above that score, they may decline the application. You may be able to overcome this by paying rent in advance or offering a higher security deposit in order to demonstrate financial commitment.
You should also be sure to discuss the structure of deposits with your potential roommates. In general, a security deposit is assigned to an individual rather than a residence. This means that two roommates in the same apartment could have different deposits based on their credit scores. However, if one roommate causes damage, it can be pulled from both deposits if needed.
When you are calculating the expenses of a new home, be sure to identify what is a security deposit and what is an additional fee being charged. You may see everything from application fees to pet fees, which are normal, but you do not want to assume they are all refundable like your deposit will be. It can be helpful to write separate checks to help you keep better track of what is and isn’t refundable, even if they are paid at the same time.
Paying Your Security Deposit
Like your first month’s rent, you must pay a security deposit before you move in to your new home. There will typically be a full listing of all payments due before you move in, including the deposit. It’s important to be punctual about these payments, as missing a deadline could mean your apartment is released to another applicant.
One of the first things you should do once you have paid a deposit and gained access to the residence is take a full inventory, including photos and even videos. You will want to have a record of exactly what the house looked like, including any damage or issues when you moved in, to avoid being accused of having caused them.
A property management company is required to put your security deposit into an interest-bearing account. Some states have additional regulations- for example, Massachusetts and New Jersey require all individual security deposits to be placed in separate accounts, with the residents provided a receipt to show where the money is being held and the annual interest rate. This money cannot be spent unless a relevant circumstance arises beyond typical repairs and wear and tear.
When Do I Get My Deposit Back?
The timeline of a returned deposit can vary and is usually anywhere between 14 and 60 days after you have moved out of the home. This gives the owner time to assess any damage and what repairs would need to be completed.
The return of your deposit is not an all-or-nothing endeavor. Typically, there will be a full inventory done of the space to determine what you are liable for and not. You may receive a small list of itemized expenses that are deducted from your initial amount while you still receive most of it back. Pay attention to the wording in your lease regarding who has the discretion to determine this.
Security deposits also have specific scenarios when they can and cannot be withheld to pay for the damage. The intention is that damage has to have been the fault of a resident in order to be part of a security deposit. Natural disasters and other events that are out of your control will not be a reason to lose your security deposit and will instead come out of your landlord or property manager’s insurance on the structure itself. While this will not cover your personal belongings, it will absolve you of responsibility for the damage.
Other scenarios, like fire or theft, can be more nuanced and depend on both the landlord’s insurance and your rental insurance. For theft, their insurance will not cover your stolen belongings, but it will cover any damage to the property. When it comes to fires, the situation depends on if you are at fault or not- when you are, you will be responsible for all damages, even those beyond the amount of the deposit. But if your property is damaged due to someone else’s negligence or an accident, you will not be responsible.
Settling Deposit Disputes
There are many cases where security deposits lead to a disagreement- the owner feels you should not receive the full amount back while you think you should. If you feel you are being treated unfairly per the terms of your lease, one way to address this is to write a demand letter. This is a formal statement that lays out why you feel your security deposit should be returned and will usually result in a settlement of sorts.
If you cannot reach an agreement after a demand letter, the next step would be to pursue a lawsuit in small claims court. This process can be expensive and tedious, so it should only be used if you have a strong case and will be able to collect if you win the suit. It will also be important to understand your state, county, and city laws on these matters, as they can vary widely.
The best way to prevent these disputes is to take steps before moving in to establish terms. Similar to a home inspection during a purchase, you can actually have a move-in inspection performed in order to create neutral documentation of the house’s state. This is a service professional's offer, or you can conduct a thorough inspection yourself. You should look for any previous damage, even things as minor as a cigarette burn on a carpet or debris that can easily be removed. Be sure to test every appliance in the home to rule out malfunctions, and test all systems that could lead to future maintenance issues.
One thing that is often forgotten at this stage is smoke and carbon monoxide detectors, as well as other health and safety information. Gather as much information as you can about lead paint and other hazardous materials.
The more you document, the better you will be able to make a case surrounding your security deposit. This can also come in handy when maintenance requests come up and for other needs during your time in the unit. With a full understanding of your rights and the constraints of your lease, you will be able to live comfortably, knowing you will receive your security deposit when the time comes to move out into a home of your own.Posted by Florida Realty Marketplace on