Discrepancy in number of BR

[Ryan Logue]

We are ready to make an offer on a beautiful college town rental that has been recently rehabbed, is now turn-key ready, and all the numbers really check out for this to cash flow well. 

There is one major dilemma: 

The house is 1927 built originally a 2BR / 1 BA with unfinished basement. 

House was sold in late 2018 to investors who extensively rehabbed it. There are now an additional 3 BR / 1 BA in an completely finished basement. All construction was done with permits, and all new bedrooms are up to code according to size/placement/etc of egress windows, doors, closets etc. 

My realtor says it is legal to advertise this place as a 5BR / 2BA on MLS and around campus, legal to have people sleeping in these bedrooms given that they're up to code. However he tells me that since these 3 new BR are below grade, for appraisal and tax assessment purposes this parcel will only be a 2BR / 2BA. The most recent tax assessment is based on the pre-renovation 2BR / 1 BA and original square footage.

My questions are as follow:

1) Is this assessment correct?

2) Is there extra liability having 5 students living in a house with 5BR up to code but the parcel only says 2BR?

3) Is there potential for insurance claim deniability in the future if this is insured as a 2BR and there are 5BR being used?

4) In subsequent tax assessments, I suspect square footage to go up given that the basement is finished, but will the assessor now include these 5 BR into the tax calculation?