What should I do with their security deposit? 

Suffering today in an effort to earn greater success and income for tomorrow so you can relax and feel secure at some future date is insane.

It says if "the seller breaches the agreement, the agent will still get compensated."

Also that those repair costs don't affect the security deposit.With me living in the house with many people, if I find that a particular tenant caused a good amount of damage via general misuse or negligence, am I able to charge them for repairs to that appliance?

Sorry, but your "word" or "Zillow" isn't good enough.Some members just use their last initial for privacy/security reasons. 

I offer a nice place which is safe and secure with new kitchen bathroom and flooring.

As you can imagine these jobs are extremely difficult to secure.

I have a lender or two that will ask for appraisal funds up front, but this  is done through a secured portal and it is disclosed that the funds are refundable should your deal fall through before an appraisal inspection is performed. 

I would like to use a FHA loan to secure a down payment.

I also secured a great mentor who has committed to working with me once a week teaching me the ropes.