Are you planning to move to an apartment? There are many factors that you should consider. Besides the location of the apartment, you should pay attention to the costs that come with it. As far as the cost is involved, most landlords usually ask you to pay a security deposit alongside the standard monthly rent before you are allowed to rent that apartment. The amount that is charged as a security deposit differs from one apartment to another.
For instance, if an apartment has fancy features, you might be asked to pay a higher security deposit. The monthly rent charged for the same apartment will equally be higher than those of other places. Therefore, it is important that you take note of this to avoid future inconveniences. In this article, we shall demystify the security deposit and other facets around it for better understanding.
What is a typical security deposit?
Like we have mentioned above, you have to pay a security deposit to the landlord alongside the advance rent payment before being allowed to rent his or her apartment. Simply put, this is an amount of money that is equivalent to one month’s rent that is given alongside the normal monthly rent to the landlord before one is allowed to start living in a particular apartment. Therefore, if the monthly rent for a particular rent is $300, the security deposit will be $300.
However, this is not always the case for all apartments. This is because some apartments usually charge one and a half month’s rent as a security deposit. For instance, if you rent a furnished apartment, be sure that you will pay one and a half month’s rent. However, if you lease an unfurnished apartment, you will only be charged a security deposit that is equivalent to the rent of one month only.
Besides the parameter mentioned above, security deposits are based on:
- State law
- Market competition
- Cost of monthly rent
From a layman’s perspective, a security deposit serves as insurance against unforeseen incidences. For instance, if you damage anything in that apartment, the security deposit will be used to cater for all the necessary repairs once the tenant terminates the lease. In case you skip out on your rent, or you fail to pay your rent for a particular month, this amount of money will be used to cater for that month.
Generally, this amount of money is used for a rainy day and is refundable once you terminate your lease appropriately. If you are a responsible tenant and you leave the apartment spotless, be sure that you will get your security back.
What is EMD and security deposit?
To start with, EMD stands for Earnest Money Deposit. Unlike the security deposit, this refers to the amount of money a buyer pays as an indication of good faith in buying a particular home or apartment. In most instances, this amount of money is usually given to the real estate agent when the buyer signs the purchase agreement. It is then put in an escrow account until the contract closes.
Once you pay the EMD, you will be at liberty to conduct the title search of the property you intend to buy. Also, you will have ample time to get more financing so that you can ultimately buy the property.
Finally, you will have time to do a number of inspections before you eventually commit that you want to buy the home. Generally, the EMD is considered to be a deposit on a home. Other times, EMD acts as good faith money.
Here are the other characteristics of an EMD that you should know:
- The EMD is the amount of money all tenderers give with their respective tenders
- In most cases, the EMD is usually 1 to 2% of the estimated cost.
- The EMD can either be in cash or deposit in a state bank or Treasury.
- One of the purposes of the EMD is to punish the contractor in case he refuses to take up the work. It also serves as a deterrent to a weak contractor. As a result, he must be ready to lose the money in case he does not perform as expected.
- If the EMD of a certain tenderer has not been accepted, it is usually refunded. On the other hand, the EMD of a successful contractor becomes a security deposit.
Here is what you should know about security deposits in relation to EMD
- Security deposit refers to the amount of money that a contractor pays after his or her tender has been approved.
- In most cases, this amount is about 10% of the tendered amount. For instance, if the tendered about is $50000, the contractor will be required to pay $5000.
- The amount mentioned above is obtained by converting the EMD into a security deposit. The remaining amount is thereafter deducted from the running bills of the contractor. For each running bill, 10% of it is deducted so as to come up with a security deposit.
- The actual intention of a security deposit is to punish the contractor in case he fails to meet the terms and conditions as indicated in the contract. Also, if the contractor does a shoddy job, or fails to complete the assigned tasks, the security deposit can either be forfeited partially or fully by the department in question.
- However, if the contractor does a satisfactory work, he is eligible for a refund. Typically, the contractor gets his money back after 6 months from the day he completed the assigned task.
Is security deposit per person?
Yes. Whether you share a room with your friend or not, it is essential to note that security deposits are basically meant to be allocated to separate individuals. However, this is practical in an ideal situation. In most places, you will find out that as long as one person pays the security deposit, they can move in as a couple and live in a particular apartment. One advantage of paying separate deposits is that it will take care of damages in case your partner damages the apartment.
A good example would be if your parent sets the living room or the bedroom on fire. In such scenarios, the security deposit of one person might not be enough to cater to the damages caused. In that case, money will be deducted from the other person’s deposit so as to repair the damages caused. This is the reason why most landlords charge separate deposits to individuals who choose to live together in one apartment.
What is the point of a security deposit?
To start with, the security deposit is taken by the lessor or landlord as a token of guarantee that you will adhere to the timelines stipulated in the rent agreement. Besides this, the security deposit services as a measure of security in case the tenant damage anything in the apartment. If this happens, the landlord will deduct the cost of damages from the deposit paid by the tenant.
Furthermore, the security deposit can act as a backup if you fail to pay rent for a certain month. In such cases, the landlord may fail to refund the security deposit after you have completed your duration of stay in his apartment. However, if you were a responsible tenant and you left everything in reasonably good shape, the chances of being refunded the security deposit are very high.
Final thoughts
As you purpose to lease an apartment, you should ensure that you have enough security deposit as well as the advance monthly rent for that particular month. Depending on the kind of apartment you want to lease, the amount of security deposit charged might vary. Note these details before renting an apartment, and you will not be inconvenienced.