Normally, I would assume you return the pony first and the refund is processed once the seller receives it. But yes, it is how you work everything out with your seller.
However, I would not worry if the seller asks you to send the pony back first, since that is very common. In extreme cases, you can ask a neutral third party (mod perhaps (?)) to hold the funds for the two of you until the seller receives the item and you have shipped. That way neither of you would be at the mercy of the other.
Good luck!