A listing agent who own 100% of property cannot produce permits he disclosed now that I am in contract for purchase

Lawsuits are expensive, and there is a substantial risk that you might be awarded only a small judgment or nothing at all. If you lose, your contract probably provides that the loser has to reimburse the winner for her or his legal fees. If you lost, you could end up paying the other side's attorney fees and expenses. You or your own agent or your own attorney needs to go to the city and review the permit history for the property. It does not sound like anyone knows whether or not there really is a problem or not. It sounds like the second bathroom might be legal and that there might be permits. You should find out for sure. If there is a problem, then talk to the city about what it would take to legalize whatever is illegal. It might not be that hard or expensive enough to even fight over. Once you know how much it is likely to cost, you might be able to negotiate a corresponding reduction in the purchase price. Even if you went to court, your damages are the difference between the contract price and what the house would sell for if the illegal bathroom had been disclosed. In a seller's market like now, where there are multiple bids for every property and bidders who have lost out on prior offers, there might be buyers who would overlook this problem and buy the property anyway, with no reduction of the price. If the seller proved that at trial, you would lose. As discussed above, that would mean you would owe the attorney fees. You will need more facts before you will know what to do.  If you appreciate this free advice, please remember to refer me to any friends or acquaintances who need a lawyer. Referrals are still our best source of new business. Dana Sack