What to do with converted garage done without permit

[Mark Derecho]

I am about to start renovation on a property in Houston.  It has a converted garage which was done without a permit and looks to be not up to code.  My plan was to demo and convert it back to a garage.   Getting it up to code would put me over budget.

The property was appraised as a 2 bedroom not a three (appraiser went with public record and did not count the addition).  It appraised a little over what I had hoped for.  

Question to the forum:

Should I even bother converting the addition back to a garage?  Since the appraiser did not include it in the appraisal anyway.  Will not converting it back  hurt my final appraisal?

thank you!