Do I have to return his security deposit?

It is increasingly common for a PM to charge a "leasing fee" which covers all the costs of marketing, showing, screening, placing tenant under contract, collecting deposit and rent, setting up utilities, getting the tenant placed, etc.If the PM can't justify the cost, then they shouldn't be charging it.

I try to have as much as possible EMD (not standard EMD requiring a signature from the buyer but non-refundable or as a security deposit) from the end-buyer.  

Always allow pets no matter what they have, just charge more if you think it's a higher risk pet (best practice is to actually specify pet fee and pet deposit in the Ad). 

How are people holding security deposits in NC?

In my financial statement to the tenant concerning the deposit I itemized all the deductions. 

We didn't want to mess around with a rental agreement and a deposit etc., because it is short term, 30 days or less. 

Some lenders might accept Airbnb/VRBO income reports or bank statements showing rental deposits, but this is less common.

It also took me down the rabbit hole of the safety of escrow deposits which seems quite frightening.

You had to looks at and confirm the lease terms (length and cost) as well as security deposits and so on.