I'm not an experienced builder, but for what it's worth, I'd give him the refund, less the cost to add your inlay. Likely a $200.00 item.
I had ordered a mandolin and the builder did exactly what I told him to do. Fact was I didn't use good judgement on the peghead and instructed him to redo the inlay. He did for the extra effort it took him (it was $200.00) When I had to cancel my order (I had already given him a deposit), he gave me the full refund, minus the extra effort to re-do the peghead inlay to a more conventional style.
I'd say go ahead and give the customer what they want, but if it's returned hold back funds needed to make it sellable in your market.
Like I say, I'm just providing advice from my limited experience.
¡papá gordo ain’t no madre flaca!
'20 A3, '84 1N, '84 A5-1, '06 Phoenix Bluegrass, 2012 Cohen A5, 2012 Muth A5