How To Avoid and Handle Cancellations from Vacation Rental Guests

    handling vacation rental cancellationsAs owners, cancellations can be one of our most dreaded situations — especially the last-minute kind. Your first reaction might be out of anger or frustration, since you can't just fill your vacancies with walk-ups, after all. However, it's important to recognize that these things will happen at some time or another, and you need to be prepared to deal with them.

    If you don't plan ahead, guest cancellations can be frustrating, overwhelming, and downright awkward — but they don't have to be. With a sound cancellation policy and preventive measures in place, you can handle potential cancellations with ease — or even avoid them altogether.

    Step 1: Don't Immediately Mark Your Calendar As Booked

    A good rule of thumb is to never mark a reservation on your calendar until you have money in hand. To secure a booking, you should have both a legal and financial commitment from your renters. In other words, you need deposited money and a signed rental contract. If your guests can't commit right away, you should make it clear that you will not hold dates until you have a deposit. If they plan to pay by check, this will help to instill a sense of urgency for them to send their check ASAP.

    Step 2: Accept Credit Cards

    One of the best measures for preventing cancellations while “the check is in the mail” is to accept credit cards. Credit cards allow you to charge deposits and process payments instantly, eliminating that gray area when the check is (supposedly) in the mail. And let's face it, you get your money sooner! Just make sure to have the renter sign and fax back your rental agreement within 24 hours before charging the deposit. (You should never accept any payments without a signed copy of your rental agreement.) Be clear that the signed contract, in addition to the deposit, is what officially holds the reservation.

    Step 3: Create a Clear Cancellation Policy

    One of the most important clauses in your rental agreement is your cancellation policy. You should clearly outline your penalties for cancelling within specific time frames, and progressively increase those penalties as the check-in date approaches. For example, many owners will require 60 days notice or more for cancellations to incur no penalty. Cancelling within 60 days of arrival, however, may require the prospective renter to forfeit the reservation deposit or any payments made up to that point.

    If you have monthly or longer-term rentals, you might require even more notice for cancellations since it will take longer to re-book an extended stay. Your cancellation policy should also include penalties for any changes made to a reservation that would result in a shortened stay.

    Keep in mind that if you charge your renters a security deposit, you are not allowed to keep it without just cause. If, however, your rental agreement explicitly states that your deposit automatically converts to a security deposit upon final payment, you may be able to keep that money in the event of a cancellation. It all comes down to the nomenclature used in your rental agreement.

    Some people might also choose to impose a cancellation fee even when the cancellation occurs within the approved timeframe. This fee would be somewhere between $25 and $150, depending on the total amount of the rental, and would cover any administrative fees, such as postage and credit card processing, that you might have already incurred. Since you set the rules, you can make that figure anything you wish.

    Bottom line: your cancellation policy needs to cover all your bases. Remember, you are not a big business, and your chances of re-renting a week grow exponentially lower as the date draws nearer. You can outline your cancellation policies however you see fit, but try not to make them so restrictive that your guests won't book in the first place.

    Step 4: Encourage Guests to Purchase Travel Insurance

    Some guests, especially those new to vacation rentals, might be nervous about your cancellation policy, especially if they are used to booking hotels with 24-hour cancellation windows. So, another method for giving your bookings some extra security and easing your renters' minds is to encourage them to purchase travel insurance. That way, if an emergency were to occur, they have additional recourse for canceling their stay and potentially obtaining a refund.

    Travel insurance is usually reasonably priced (as low as 2 to 5% of the trip cost) and would be entirely up to your guests to research and purchase. It would be helpful, though, to include information in your rental agreement and perhaps in your early correspondence with renters. Although the insurance policies vary when it comes to “valid” reasons and amounts for reimbursement, your renters might find some comfort with this added protection.

    Step 5: Cope with Your Conscience
    Even with a clearly defined cancellation policy and all the preventive measures in place, when it comes down to an actual cancellation, your emotions can sometimes play a role in your decisions. If a guest wants to cancel because of rain, it's a little easier to stick to your cancellation policies than when a guest experiences something unexpected and unfortunate, like a death in the family or a serious illness. In that situation, many of us will grapple with the issue of sticking to our business judgment or giving in to a guilty conscience.

    This is why travel insurance can be so helpful — if your guests have purchased a policy, the refund decision is no longer in your hands and your guilty conscience is easily alleviated. If your guests did not heed your advice, though, this is where you fall into that sticky area that we'd all prefer not to be in.

    There is really no right or wrong answer, and each situation really needs to be evaluated on a case-by-case basis. In general, it's best to have an honest conversation with your renters to determine both of your options. You'd be surprised how willing some people are to work out an arrangement.

    No matter what you decide, it's generally good practice to refund someone's money if you're able to re-book the dates. It never hurts to build goodwill with renters that may book again with you sometime in the future. Or perhaps you can work out an arrangement for a partial refund. Read how one owner (Nadia) solved a cancellation problem:

    Nadia rented her snowbird season (JanuaryMarch) in April of the previous year for $1,000 per month + $200 security deposit. In November, these guests stayed at her property for a long weekend. Upon returning, the renters called Nadia and explained that although her home was beautiful and it was everything that she described, they decided to go to a totally different city for their 3-month stay.

    Nadia's rental rules required her snowbirds to pay in full 60 days prior to their rental date, and her cancellation requirement for monthly rentals was 180 days. She had every right to keep their full payment (but not the deposit, since it was a security deposit).

    Nadia explained to the renters that it would be very difficult to re-rent those dates since most snowbirds had secured their rentals by that point. The renters clearly understood her dilemma, as well as the rental policies.

    Together they came up with a great solution: Nadia agreed to do everything possible to try to re-rent those three months. One month passed and not a single renter called. When the renters and Nadia spoke next, the renters suggested that Nadia reduce the rental rate to $700 per month. She did not rent January, but did end up renting February and March. Nadia happily refunded the first snowbirds the $1,400 she received from the new renters

    By working out an arrangement with the canceled guests, Nadia was able to maintain a good relationship with the original renters while securing a new booking for her open dates. With a little effort and creativity, you might be able to work out options that will be favorable for everyone involved. Either way, it's always a good idea to have clear guidelines in place so you are prepared for any reservation changes in the future.

    © Copyright HomeAway, Inc. 2008                                             Updated: November 25, 2009

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