Hi @Lynne5,
I would simply reply that they booked for two nights and that the cancellation policy they agreed to when booking does not allow a refund and if you were able to book the place for the day they left, you would have reimbursed them but it sat empty due to short notice.
If they cancelled their reservation, they would not get any money back no matter which policy you had set because they were only there for two days. You have two listings so let us just go with your "moderate" cancellation policy. Since they stayed the first night, they only get refunded 50% of the nights not stayed 24 hours after they make the cancellation request meaning they would not receive a refund at all.
You can refund them if you wish, but I would not. You lost the opportunity to rent it out.
Dave
David
Superhost Ambassador ~ Host Club Community Leader ~ Experienced Co-Host