As background:

• Wife and I are first time home buyers, interested in purchasing a house that we will occupy for at least 5 years.
• I really dislike long commutes, but my work is located in downtown, and prices near downtown are at a premium.
• There's a gentrifying area near downtown where I can get property at a slight discount, and we're looking there.
• I have a buyer's agent and have discussed with my agent, but they were not super helpful with the particular issue. Didn't seem to be something they were experienced in handling.

Specific property details:

• We found a house with a converted garage addition, and that needs some renovation in the main house, that we like. Great location as well.
• Seller disclosure reveals that there is unpermitted construction on the property. No specifics yet, but I've requested detail.
• The garage reno was more than a decade ago. Other minor work has been done.

Transaction details:

• I'm working on a compressed timeline and would like to close in about 60 days. Seller is aware.
• Financing will not be an issue, unless unable to be approved due something wrong with the property (we're buying well below what we could buy at -- property price is ~2x annual net income).
• I have not made an offer yet, but was intending on making an offer yesterday. This issue came up yesterday and I'm still working through it. Would like to make an offer ASAP, if we go that route.

My thinking on a few salient points:

• I would not particularly care if we have to tear down the addition -- It's likely that I'll be either rebuilding or significantly renovating at some point, regardless. The addition is nice to have, but it's not the key value proposition to me.
• My primary concern is that I don't get stuck with the cost of the permitting process and any related work that needs to be done, whether to bring the prior construction up to code, or to tear it out.
• Seems silly to include something this obvious, but will need the final purchase price to reflect the value of the as-permitted property, which may mean knocking off a chunk to account for the addition tear-down (again, if it comes to that).
• I'm not intimidated by the process, and really love the property, so a bit of a hassle in sorting this out is not a big issue.
• I've done a little research into title insurance, and it looks like a title policy would not cover this, correct? Title policies may cover if you've got the proper endorsement and didn't have knowledge of the issue at purchase, but it doesn't look like it will cover a known issue. Would be nice if we could have them cover the issue and just bake it into the policy cost paid by the seller, but that doesn't seem to be an option.
• The immediately obvious solution would be to make the proper permits a closing condition, but I'm concerned about whether that will be a long-pole and force the closing date back.

Questions (numbered for easy reference while responding!):

1. Any general thoughts/ideas/strategies are welcome!
2. In the larger financings I do professionally, this would be solved by establishing part of the sales price as an escrow and using that to cover post-closing remediation. However, I don't have experience here and am not sure whether that's something that would be workable in this context. Would I be stared at like a mad-man for suggesting this?
3. When (if ever) would it be appropriate for me to go directly to the County and request an inspection?
4. I'm currently leaning towards making an offer conditioned on proper permits at close, and set a hard closing date. Would you recommend that, or say to take a different route? If I take this route, and it turns out that the permits won't be ready, I can work with the seller to close and transfer possession, and take a price concession or use an escrow arrangement. But I don't want to introduce the complexity there right from the start before it's apparent that it will be necessary.

Very much appreciate your thoughts. :)