Refundable vs. Non-refundable pet deposits

[Jim Bentley]

I have a renter who wants to get an outside dog for protection because her boyfriend is going to be working out of town off and on.  I'm going to agree to this after meeting the dog and getting a $500 additional deposit, on top of the $500 they've already paid.  

I have a friend who says this pet deposit should be non-refundable.  My thinking with this is that this essentially gives the renter subconscious permission to let the dog to $500 worth of damage - "Fido's scratching up the back door, but that's OK because I've already paid $500 and it won't cost that much to repaint it."

To me, it makes more sense to make it refundable, and that way the more damage they prevent the dog from doing, the more money they get back.

So, refundable or non-refundable?