Is this a scam? Security deposit for proposal

I recently hired a rental agency to start looking for houses on my behalf. They've been doing live viewings for me.

Recently, I asked them to extend an offer for a house and they're asking for a security deposit. Here's exactly what they're saying:

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As part of the selection procedure from the letting agent, a refundable security deposit of €500 is required to proceed with your proposal.

Please note the following:

1. If you are selected as the tenant, the €500 deposit will be deducted from your first payment.

2( If you are not selected as the tenant, the full €500 deposit will be refunded to you without any deductions.

This deposit is solely intended for the selection procedure and will either be credited towards your tenancy or refunded in full, depending on the outcome of your application.

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I've signed a contract with a rental agency, but it doesn't mention anything about this. As the post suggests, I've only extended an offer to rent a house; I haven't signed any contract for it.