What cancellation policy should I set?

Set terms you would be willing to apply on a bad week, then write them where the guest cannot miss them.

This matters more on your own site than on a platform. There, the marketplace's policy sits between you and the guest and its support team enforces it. Here, the agreement is directly between you and the guest, and what your page says is what you have agreed to.

A workable shape for most short lets: a full refund up to some number of days before arrival, a partial refund inside that window, and nothing in the last few days, when you realistically cannot resell the dates. Whether that window is seven days or thirty depends on how far ahead you get booked and how quickly your dates refill.

Three things are worth being explicit about, because they are where disputes start:

Cleaning and fees. Say whether they are refundable separately from the nightly rate.

Your own cancellation. If you have to cancel — a burst pipe, a family emergency — say what the guest gets. A full refund is the only answer that does not end badly.

Force majeure. Decide in advance what happens if travel becomes impossible for reasons neither of you controls, and write it down. Everyone who did not have this written down found out the hard way once already.

Consumer protection rules in your country may override what you write, particularly for guests booking as consumers. A policy is not a way around law that applies to you. If you let at any scale, it is worth having a local lawyer read your terms once.