Airbnb has 3 cancellation policies:
1) Flexible - Full refund 1 day prior to arrival
2) Moderate - Full refund 5 days prior to arrival
3) Strict - Full refund for cancellations made within 48 hours of booking, if the check-in date is at least 14 days away. 50% refund for cancellations made at least 7 days before check-in. No refunds for cancellations made within 7 days of check-in.
Which cancellation policy is best? The answer is "IT DEPENDS". It depends on mainly 2 factors to consider:
1. The SEO boost you need to stay competitive within a competitive market, and
2. Time Required to get the place rebooked.
SEO Boost
When starting a new listing, you should ALWAYS start with the flexible cancellation policy. A flexible cancellation policy will allow greater bookings. Only when you have been operating for 2+ months and 10+ trips you could think about setting your cancellation policy more aggressively. Alternatively, if time has passed and your calendar is consistently empty OR if you have been having issues with an empty calendar, this is something to consider.
Time Required
In high season, if I receive a cancellation 5+ days out I can pretty much guarantee that the place will get rebooked. If it is within 5 days, the chances are very good. In the low season, it is very different. 5+ days out the chances are good but if its within 5 days chances are 50/50. Your situation will be different but think about the chances or getting the place rebooked.
Select the FLEXIBLE cancellation policy if:
1. You have started a new listing and have less than 10 reviews, OR
2. If you get a cancellation, chances of getting rebooked are VERY HIGH.
Select the MODERATE cancellation policy if:
1. You have at least 10 reviews, AND
2. If you get a cancellation, chances of getting booked are good.
Select the STRICT cancellation policy if:
1. You have at least 10 reviews, AND
2. If you get a cancellation, chances of getting booked are low.
Personally I use a moderate policy for my Airbnbs over 10 reviews because if I combine high and low season chances are good for rebooking.
Good Samaritan Policy
Bad Karma is bad for business. If a guest cancels within your specified cancellation policy and does not receive a refund you should try your best to refund them by trying to rebook the days. If you get the dates rebooked you should refund the guest who has cancelled the amount received from the second guest.