Sometimes when we make travel plans, life gets in the way and we may want to cancel our existing reservations. This is no different for Airbnb guests. As a host, cancellations aren't fun, particularly if it's a last-minute one, leaving very little time to find a new guest. Therefore, it's important to choose the right Airbnb cancellation policy.
Airbnb cancellation policies are designed to protect both the hosts and guests. Under all three policies, guests are entitled to a full refund within 48 hours of booking.
Airbnb hosts can partially be compensated for cancellations, depending on which cancellation policy they choose (and the exact terms also depends on the location of the host). Airbnb provides six cancellation policy options.
The short answer is, it depends. For new hosts, I definitely recommend the flexible policy. For seasoned hosts, it could be flexible or moderate. I advise against using the strict cancellation policy.
Note that the super strict 30 and super strict 60 cancellation policies are only available by invitation and under special circumstances. I'm not sure what these are and I've never seen anyone use these.
For new hosts, I recommend choosing the flexible policy, in particular for hosts who are just starting out. The reason is that at the beginning stage of your Airbnb business, getting bookings is of the highest importance. A flexible policy promotes bookings as guests know that they can cancel for a small fee (they only lose the Airbnb fees). Showing that you're willing to accommodate for the needs for your guests will help them trust you while you build up your reviews.
When I say new, I mean hosts who haven't reached near full occupancy yet. An empty room or house makes nothing, so if you have big gaps in your calendar, the last thing you want to do is deter guests from making a booking by having a moderate or strict cancellation policy.
If you've been doing Airbnb for a while and you're almost always fully booked, you could use the flexible or the moderate policy. I don't have a strong opinion on which of these is better.
The main difference between these policies is that the moderate policy offers the guest only a 50% refund when cancelled less than five days before check-in, and a full refund if cancelled earlier. The flexible policy provides a full refund if cancelled more than a day in advance.
As you already have a strong reputation on the Airbnb platform, I don't think a moderate cancellation policy will lose you a lot of bookings. At the same time, it doesn't offer much protection either, because from my experience (I'll provide some numbers below), most cancellations happen more than five days in advance, so both policies would provide a full refund to the guest.
The difference between the strict policy and the other two is quite significant, as guests are not eligible for a full refund, no matter how long in advance they cancel. I strongly believe this policy deters users from booking and the vast majority of bookings lost wouldn't have been cancelled anyway. Here's why.
First of all, cancellations are pretty rare in general. With a moderate cancellation policy in place, I accepted 379 reservation requests during my hosting journey in Amsterdam, and only 33 cancelled. That's less than 9%. That means that only about one in twelve bookings were cancelled.
Only one of these bookings was cancelled less than five days before check-in, so I got to keep 50% of the booking amount. I lost a total of 25 booking days as a result of the cancellations. I calculated this by looking at the days that were cancelled and how many of these days I managed to book after the cancellation.
In other words, during nearly five years of hosting, only 25 booking days were cancelled that I didn't manage to re-book. That's a very small number, about 2.5% given that I've hosted a total of 1087 days. I'm fairly confident that if I would have had a strict cancellation policy in place, I would have hosted significantly fewer days.
The reason is simple. Our brains are wired to always consider the worst-case scenario. Whenever we commit to something, the “what if?” question pops up. It makes people feel uncomfortable to be stuck with a commitment that they'll have no way to back out of. Even if they don't plan to back out of it. They'll most likely look for another rental with a more lenient policy, especially when dates are far into the future.
This is the reason that hotel bookings websites have started to offer the free cancellation option up until the day before check-in for a lot of hotels. It gives the booker the peace of mind that if plans would change, they can cancel. However, it's very rare that these plans actually change, as you can see from the numbers that I provided.
If you want to easily access this data for your listing, in your Airbnb dashboard go to “Your Reservations,” scroll down to the bottom and select “View all reservation history.” Then click on the “Print this page” in the top right corner. Now use the “find” function (usually ctrl-F or command-F) and search for “accepted” to find your total number of reservations and “cancelled” for the total amount of cancellations.
Now scroll through the list to count the “fake” cancellations. I had 11 out of 44 that weren't real cancellations, these were bookings where the booker made a mistake, cancelled and made a new booking. Remove these from your calculation.
Airbnb is testing a change to their cancellation policies in Italy. The main changes are:
=> host fees are increased for the moderate policy (4% instead of 3%) and strict (5% instead of 3%)
=> a 100% refund now includes the Airbnb fees
=> changes in the cut-off time for moderate (from 5 to 7) and strict (from 7 to 30)
The new policies are simplified in the sense that all policies now include a period of time where the guest can cancel without any financial loss. This is a game-changer. The security and peace of mind that this gives the booker will allow them to book with less hesitation.
Clearly, the new policies are more in favour of the guests and the initial reaction from Italian hosts isn't very positive, as could be expected.
Airbnb is aiming to make its platform more user-friendly by incentivizing hosts to adopt the flexible cancellation policy. Although I understand the pushback from hosts, in the long term I think this is a good thing. The increased user-friendliness will help the platform attract more users, which will benefit hosts.