Ep675 – Airbnb’s New Cancellation Rules: What Every Host Needs to Know (October 2025 Update)

Jasper: What’s up everybody? Welcome back to Get Paid for Your Pad. It’s Monday, so we’re doing an episode of Rev Up, where we give you insights on our revenue management strategies and how you can maximize revenue for your short-term rental listings.

The topic for today is cancellation policies. You might think, what does that have to do with pricing and revenue management? Well, we view revenue management holistically, it’s everything related to driving bookings. While you might argue everything affects bookings, marketing, distribution, operations, we draw the line at anything related to pricing or availability, like minimum night stay settings or booking settings. That’s what we consider the core parts of the revenue management strategy, as well as booking channels, distribution, and different discounts on the OTAs.

Today I want to talk about cancellation policies. It’s an important topic because cancellation policies can significantly impact your bookings. We’ve seen this with clients who have all sorts of cancellation policies. When you go from a very restrictive cancellation policy to a much more flexible one, you often see a pretty big spike in bookings.

I’m going to walk you through every single policy. There have been some changes. I’m focusing on Airbnb for this episode, and I’ll probably talk about other channels next week, how you can keep your cancellation policies congruent across different channels, and if there’s any reason to have different policies on different platforms. Should direct booking, Booking.com, VRBO, and Airbnb have the same policy, or could we have different policies on different channels?

Airbnb’s Cancellation Policy Changes

Airbnb made some changes pretty recently. It used to be that there was a strict policy, then a firm policy, a moderate policy, and a flexible policy. Going even further back, I think it was only strict, moderate, and flexible.

Now, the strict policy is no longer available. Airbnb has phased out that policy. They made the change on October 25th, if I’m not mistaken. Before that, you were still able to choose the strict policy. If you had strict policies on your listings and didn’t change them, they’ll still be there. So you might have some listings that are still on strict, but for new listings, you can’t choose the strict policy anymore.

The policies you can choose are called Super Strict 30 and Super Strict 60.

Super Strict 60 and Super Strict 30

Super Strict 60 essentially means that for guests to get a full refund, they can only get it if they cancel within 24 hours of booking. This is a rule Airbnb has across the board. There are some exceptions in different countries maybe, but just like airlines have the rule that if you book a ticket and make a mistake, you can cancel within 24 hours, that’s the case for Airbnb as well.

At any point in time, whatever your cancellation policy is, if somebody books and cancels within 24 hours, they get a full refund. For the strict policies, that is the only way to get a full refund. And that’s why I highly, highly do not recommend you use these policies. There’s a reason Airbnb phased out the strict policy.

Think about it, imagine you put yourself in the shoes of a guest. Let’s say you book a listing five, six, seven months in advance, or a year in advance. After that 24-hour window passes, you are no longer able to get a full refund. When you book that far in advance, obviously life happens, things can change, things can get in the way. If you have to cancel, there’s no way you can get a full refund. That’s really restrictive.

If you book half a year in advance and the 24-hour period is over, you are locked in for at least half of the amount you paid. What happens if you cancel after 24 hours? You only get a 50% refund on the strict policies. And for Strict 60, if it’s within 60 days of check-in, you get zero refund. For Strict 30, if you cancel within 30 days, you get zero refund.

If you’re using the strict policies, you’re essentially discouraging people from booking very far in advance. If somebody books five days in advance, it doesn’t really matter if you have strict, firm, or limited, because they’re not going to get a refund when they cancel anyway.

The strict policy discourages people from booking very far out, and that’s exactly not what you want. If you’ve been listening to this podcast, you know that maximizing revenue is all about pacing. It’s all about leveraging the entire booking window. If you’re restricting the early part of the booking window by putting a strict cancellation policy, you’re going to lose out on a lot of bookings that happen far out because people don’t want to lock in big purchases that far in advance.

You’re going to be relying more on the later part of the booking window, and that’s exactly what you don’t want to do. As we all know, prices you can get later in the booking window are generally lower than the prices you can charge early in the booking window. With strict policies, you’re basically shooting yourself in the foot.

I highly recommend if you have any listings on strict, change it right now. Airbnb will hurt your visibility. They will give you less visibility, guests don’t like strict cancellation policies, and your visibility will be significantly impacted if you’re using a strict cancellation policy. I can’t really think of any situations where you would use it.

Firm Cancellation Policy

Let’s move up to the next strictest cancellation policy, which is called Firm. For the firm cancellation policy, guests can cancel within 24 hours for full refund, like every other cancellation policy. But if they want a full refund, they have to cancel at least 30 days in advance.

That basically means if I book a unit, let’s say six months in advance for the summer, a lot of people right now are already looking for summer next year, if I book for July 1st, I can cancel it for free or with a full refund until June 1st. That gives me quite a lot of security. There’s a pretty big jump from strict to firm because that feels pretty reasonable. If something happens, I can still cancel it.

But if I cancel less than 30 days before check-in, I will receive a 50% refund. And if I cancel within seven days of arrival, I will get no refund at all. From a guest perspective, that feels like a pretty reasonable cancellation policy. The firm policy will definitely allow for bookings that are really far out, if you book three, four, five, six months in advance, you have a lot of time still to cancel penalty-free.

Now, the period where firm will hurt you a little bit is that period between 30 days and two weeks out. Let’s say I book 29 days out, I cannot get a full refund anymore. If I book four weeks in advance under a firm policy, I’m not going to get any refund if something happens.

Obviously, the time period that something could happen is much smaller, but still, if I book 29 days in advance and I can choose between somebody who has a limited policy (which is full refund if you cancel more than two weeks out) and a firm cancellation policy where I’m immediately locked in, if I book less than a month out for firm, I am locked in the moment the 24-hour free cancellation window closes. It feels like the moment you book, you’re locked in. I think there’s a little bit of resistance there for anybody who makes bookings because it feels nice to have a little bit of room from the time of booking until you’re locked in for part of the booking value.

I think between 30 days and 14 days out, the firm cancellation will hurt your bookings. You get relatively fewer bookings in that two-week time period.

Limited Cancellation Policy

Moving up to the limited cancellation policy, this is a new policy introduced about a month ago, I think at the same time they introduced the 24-hour full refund cancellation policy. The reason Airbnb introduced limited is because the jump from firm to moderate was huge. It went from “you have to cancel at least a month out for a full refund” to moderate where you can get a full refund if you cancel more than five days out. If you cancel six days out (less than a week), you get a full refund. But for firm, you have to cancel more than a month out. That’s a really big jump.

Airbnb listened to feedback from hosts and introduced a middle ground between firm and moderate, and they called it Limited. For limited, guests can cancel and get a full refund if they cancel at least two weeks in advance. If they cancel between one week and two weeks, they’ll get a 50% refund.

Moderate Cancellation Policy

Moving up to moderate, as I mentioned, more than five days out, you’re going to get a full refund. If you cancel five days in advance or less than five days in advance, you get a 50% refund.

Flexible Cancellation Policy

The last policy is Flexible, where you get a full refund if you cancel at least one day before check-in. The only time you’re not going to get a full refund is if you cancel within 24 hours of check-in. So extremely flexible. You can even get a partial refund if you cancel like 10 hours in advance.

Flexible essentially offers very little or pretty much no protection for hosts. It’s a pretty extreme cancellation policy. Obviously, if you get cancellations under the flexible policy, that can really affect your revenue.

Next, we’ll talk about what type of situations you want to choose these different cancellation policies. One thing I will note is that Airbnb did a study, and it turns out that 44% of guests say that free cancellation is one of their top needs when choosing a place to stay. That’s why Airbnb decided to highlight listings with a free cancellation policy.

If you go into Airbnb search results, you’ll notice, and this is pretty new as well, that it now shows underneath the search snippet “free cancellation,” just like on Booking.com where it’s shown with a green color to make it stand out. Airbnb now has that in the search results as well.

Yes, flexible does not offer you pretty much any protection, but it will increase your bookings quite significantly. It increases your visibility and conversion because 44% of guests are looking for that policy. Obviously for the guest it’s great, they can just book an Airbnb, and if something happens, no big deal, they can just cancel it.

Which Cancellation Policy Should You Choose?

Now the next question is: What cancellation policy should you choose for your listings? This really depends on a number of factors. First of all, it depends heavily on your booking window.

Short Booking Window Markets

Let’s compare a city with a very short booking window, like Miami. Miami has a very short booking window, most people book in the last two weeks, and there’s a lot of last-minute demand. It’s also a very competitive market where you can’t really charge a premium necessarily. The amount of room you have to play with prices when the booking window is that short is very little. The price is not really going to change that much from 14 days out until last minute.

Long Booking Window Markets

Whereas if you’re in a market with a very long booking window, let’s say you’re in a ski resort and people book five or six months out for their ski holiday, or if you’re in a beach market where people book summer holidays far in advance, then obviously getting a booking six months in advance versus getting it two weeks in advance is a major difference in pricing. Those bookings that come in six months in advance, you can charge a really high ADR. But two weeks out, that’s a different story.

This is especially true for larger homes because larger homes generally have a longer booking window. People plan group and family travel. If you’re staying with your entire family of like 16 people at a six-bedroom house on the lake in the summer, obviously you’re going to plan that a long time in advance. Also, those people that book, they’re not very likely to cancel because they booked so far in advance and there are so many people involved. Those bookings generally don’t get as many cancellations as people that book for themselves. Business travelers’ plans can change and it’s not a big deal to cancel. Even if you book for two people and decide to change your plans, when you travel with a big group, those bookings don’t tend to get as many cancellations.

The Challenge with One Policy

Going back to the cancellation policies, here’s the challenge: you can only choose one policy on Airbnb. If you choose a firm cancellation policy, which might be a good option for the high season, if you’re on the Great Lakes in the north of the US, in Michigan or Ohio, firm makes a lot of sense for the high season. Trying to book a six-bedroom less than 30 days out for the summer, you’ll be able to book it, but you’re not going to get the premium prices. So you run some risk if you have a moderate or limited cancellation policy. You want to have a little bit more protection for those dates.

But in the low season, you kind of want to just get as many bookings as you can. In January in Michigan or Wisconsin or Canada (unless it’s a ski market), you’re not going to get a lot of bookings. So you want to have a very flexible cancellation policy. You’ll probably be okay with flexible because those times of the year you just want to get as many bookings as possible, as much visibility as possible, because there’s not a lot of people traveling. You want to make it as attractive as possible for people to book your unit. But in the summer it’s a different story.

So how do you balance that?

General Guidelines by Market Type

If you’re in a market where the booking window’s fairly stable, it makes it a little bit easier. Here are some general guidelines. Obviously this is highly situational, it depends on your type of product, the size of your house, the market, the type of clientele you’re attracting. There are so many variables, but I want to give you some general guidelines.

Highly Competitive Markets with Short Booking Windows

If you’re in a highly competitive market with a short booking window (a couple weeks), you probably want to go with Flexible. The reason is that you don’t lose that much when people cancel last minute because there is a lot of last-minute demand in those cities. The opportunity you’re losing when someone cancels last minute is not that great.

At the same time, if you’re using a stricter cancellation policy, let’s say you’re using firm in Miami where most people are booking within 30 days, that means most people when they book, they’re locked in after 24 hours. A lot of the competition, because it’s a very competitive market (especially hotel rooms often have a flexible cancellation policy where you can cancel a day in advance), if you’re using these stricter policies in those markets, you’re really putting yourself at a disadvantage.

The competition is important to look at. If you’re using PriceLabs, you can actually see in the market dashboard what percentage of hosts are using what type of cancellation policy. You can get an idea of what other people are doing and take that into account.

Markets with very short booking windows: You want to go for either flexible or moderate. Anything above that is going to hurt your revenue.

Stable Markets with Moderate Booking Windows

Next up is stable, fairly stable markets where the booking window is a little bit longer, your typical secondary cities like Austin or Kansas City (not the major cities like Los Angeles, New York, Miami), secondary markets that are not highly seasonal. Generally there you want to go for either flexible for the smaller units (studios and one-beds), or moderate or limited for the larger homes.

Highly Seasonal Markets

If you’re in a highly seasonal market, like beach markets, ski markets, the traditional vacation rental markets, especially in the north of the United States and Canada, beach markets and ski markets are generally more seasonal than city markets. If you are in a very seasonal market, then you have to make a choice where you weigh two things against each other: How much protection do you need for the high season versus how much is the policy going to hurt you overall? Because the policy is going to apply to the entire year.

If you choose firm, that’s going to apply for the entire year. For highly seasonal markets, you do want to have some protection for the high season, unless your high season is crazy peak season.

We have a few markets where the peak season is just 100% booked. In those circumstances, you can get premium prices last minute, so you don’t really need that much protection. We have a client in Australia where the peak season books out pretty much 100%. I was looking at Christmas and New Year, which the market books out pretty much 100%, to see what’s still available. In some areas, literally the only units still available are the units we manage, and we are getting crazy prices, everything else is booked. We’re talking about $1,500, $2,000, $2,500 a night. Those are really high prices, but we are not lowering our prices because there’s not really anything else out there anymore that’s available. We are still getting bookings for Christmas and New Year. We’re getting pretty close, 98% of the market is already booked up and we still have a bunch of units. Every day we see bookings coming in. People are paying crazy prices, and even last minute people will pay really high prices because there are a lot of people still looking to spend Christmas or New Year somewhere in that region. If they find something available, they’ll take it; otherwise they’ll stay at home.

It’s like with airlines: let’s say it’s Christmas, it’s raining, it’s cold, and you’re like, “I want to go to the sun. Let me see if there’s a ticket to Mexico.” There’s one ticket left, but it’s pretty expensive. You might just take it because you just want to get away to the sun.

That last-man-standing strategy, if you’re in a market where it’s like that, then you don’t really need that much protection because you’re going to book at a premium price anyway, even last minute.

But most high-season markets are not like that. You’ll have high occupancy, but it’s not booking out completely. You might see 75%, 80%, 85% occupancy in your market. If that’s the case, then the last-man-standing strategy is a risky strategy because you actually do run the risk of being empty. And if you’re managing for owners, that owner is not going to be happy when their home is empty in the high season.

In those situations it makes sense to have some level of protection. I think for those markets, Firm is a good policy because it’s only going to hurt you in that two-week window where you’re between 14 and 30 days out. When you’re more than 30 days out, people can still cancel for free, so it’s not really going to hurt you early in the booking window because your booking window for the high season is starting six months out, eight months out, maybe even a year out.

For those markets, firm can be a good choice. Obviously, that also means you’re going to have the firm policy in the low season too. But the low season, you’re not really going to make much money anyway. If you’re making $300, $400, $500 for your home in January, it’s not really going to affect your overall revenue too much. But if you have a five-bedroom on the beach and you’re charging $2,000 a night for the summer and somebody cancels a two-week booking and now you have to sell it at $1,000 a night, you’re $14,000 out of pocket. I think in those situations it makes sense to use firm, especially for the larger homes.

The one- and two-beds, you could probably do limited just because people generally don’t book those smaller units so far out anyway, and they’re easier to book last minute at a reasonable price. So I think for those units you could do limited.

Most Hosts Are Too Strict

Of course, there are a lot of nuances involved. But I would say in general, what I see is most of our clients, when they come and join our service, we typically loosen up their cancellation policies on Airbnb. In general, most people are too strict, and it’s because most people only focus on those few times where somebody cancels right before the refund period ends. Now you have to rebook it at a lower price and you’re really feeling the pain. You’re like, “I don’t want to experience this anymore. I’m going to put it on strict or firm.”

But on the flip side, the benefit of having a more flexible policy is that you’re generally going to get more visibility and you’re going to get more bookings. But you don’t really feel that, it’s not felt as pain. A lot of people make decisions based on these few events where you’re feeling the pain. You’re getting the angry owner on the line who’s like, “Hey, why are we booking our unit at $1,000 a night? We got $2,000 a night last year.” And you have to explain, “Sorry, guest canceled, we have to rebook it.” That’s not fun. That’s what people are trying to prevent. But what they don’t know is that they might actually be losing a lot more revenue than they’re saving.

Hope that makes sense. I hope this provides you with some guidelines on how to manage your cancellation policies. We have seen a pretty significant impact on bookings when you loosen up your cancellation policy.

Strategy for Underperforming Listings

Here’s another thing you could do if you have listings that for some reason are not performing well. Instead of lowering the price, you could also temporarily put it on a more flexible cancellation policy. Let’s just put it on flexible for the next week, but in order to protect your summer next year, just make the prices for summer next year higher, or maybe even block out your calendar for your highest-value dates, the holidays, the summer.

Let’s say you have a bad review, these days, you get a bad review on Airbnb and visibility just tanks. It’s really hard to book those units. What you can do is close the calendar for summer and for the holidays (Christmas, New Year, etc.), just for a week put it on flexible and put your prices rock bottom for the next week. Don’t worry about how much money you’re making on those bookings. You just need to get momentum back.

For listings that are not performing, we just did this for one of our clients. He’s got a unit that was not booking far out, it was only booking last minute and it was very annoying. What we did is we temporarily lowered the minimum price for the next couple weeks, and immediately, even though we lowered it from $149 to $139, it spiked a few bookings. Those bookings immediately spiked a booking for Christmas.

Just getting a booking can help you get another booking. We didn’t change the cancellation policy here, but changing cancellation policy can have a similar effect. If you make your cancellation policy flexible, get a couple bookings going, then you can switch it back to moderate or limited or whatever you had it on. It’s all about making it a little bit more attractive for people to book, getting that extra visibility on the platform, and that could save your listing. Because at the end of the day, a listing that’s not getting bookings or only gets bookings very last minute, you could be losing a lot of money. Taking a couple weeks where you’re offering that unit at a very attractive price with a flexible cancellation policy can really help.

Closing

I’ve been talking for 30 minutes. I’m going to record another episode that we’ll publish next week where we’ll talk about cancellation policies on different platforms. We covered Airbnb. We’re going to talk about Booking.com, VRBO, and your direct booking website. Should you have the same policy across those channels, or is there a reason maybe to have a different cancellation policy on the different platforms?

Hope you enjoyed this episode. If you’re interested in knowing how much opportunity you have to increase your revenue, then go to freewyldfoundry.com/report and you can get a free pricing audit from our team. We’ll go through your pricing strategy, look at your listings, and pinpoint the biggest opportunities for you.

If it makes sense for us to work with you, if you’re doing at least a million dollars in revenue and we think there’s a win-win where it’s a positive ROI for you to work with us, meaning we can increase your revenue by more than what you’re paying us, and of course we take into account the property management fee. So if your property management fee is 25%, then if our fee is, let’s say, 3% of your revenue, then we would have to increase your revenue by 12% because you’re only receiving 75% of top-line revenue. If we think we can do that, we’ll let you know, and we’ll offer you to partner with us.

With that said, hope you enjoyed this episode. Have a great week, and we’ll be back next week with another Rev Up episode. See you then.