It's much better to drop the price.

Dropping the price by the $10K seems more straightforward and less gimmicky than dropping it by $5K with a $5K allowance.

If you need the price drop, then just do it. I've been told that if you offer an allowance, people will try to low ball and get the allowance on top of that.

I also think a price drop has a better chance of bringing more potential buyers to look. That's the first and necessary step. I am chuckling, because no matter how you do the deduction, buyers often try to squeeze the turnip a little dryer with asking for the commission to be paid and also $$ for decorating. Most feel it doesn't hurt to ask.

You can always give them the other options after they decide they can't live without your house.

In my small city in the Southeast, asking price doesn't really matter. People are low balling AND asking for cosmetic allowances, closing costs, etc. If your new price gets you to a different search parameter, ie 209K to 199K, it may help. But, prepare yourself to get offers lower than your lowered price.

I agree with what deee said. IIRC, isn't your house the one that is competing with new construction? If it is, IMHO you need to drop it at least 10k, and you may sell for 15k less. If I was in your market, your home would have to be an outstanding deal for me to pass on the new construction. Since everything in the other houses are new (such as appliances, windows, hvac etc) that is an expense in your house that should come do sooner than in the new ones. As such, your pricing has to reflect that. Sorry to be so blunt, but I think the most important thing for you is to sell your house. Pricing it well will do that.

How would a decorating allowance work? How would it benefit you, or the buyer, more than just dropping the price by that much?