You need to refund the buyer the entire amount. The buyer bought an item and expects to receive it in the same condition as listed on the auction. The buyer sent you the letter, correct? You refund. If you had insurance, you file a claim. If no insurance, you might get a refund of the postage if you go to your post office and the supervisor knows you or is understanding.
Even though the post office messed up the item, you could have always packed that item in a bigger box or a sturdier box. I know, I know, sometimes, no matter how you pack, it gets destroyed. But remember, the buyer was expecting the item to arrive perfectly. It did not, so you need to refund. Apologize profusely even though this might not be all your fault. Some of today's buyer are downright mean and you don't want this one to give you a negative.
