Totally unacceptable.
Once money change hands (even if only a deposit) then the game is sold, PERIOD!
In most cases that exchange of money actually makes it a legal sale.
If the seller got cold feet then they shuold first and foremost reach out to talk with you. Cancelling a paypal payment via refund is not the way to go about it. Most people are pretty reasonable if you just reach out and talk with them.
In this case I would be requesting additional funds to cover my expenses and time. I can only imagine if you sold something else or other dominoes were tipped to make this all happen.