Back out of closing due to finding Unpermitted additions

[Matt Smith]

First time home buyer here, I was planning to buy a house with 3bd 2ba and a finished basement, with the additional bath located in basement. I completed the inspection and appraisal and about a week from closing.

I recently came to know from the city council records, that they have on file a 3bd 1ba and unfinished basement. Checking their website, I found they were no permits pulled for finishing the basement or adding the additional bath.

Now I'm not sure if I would want to carry these unpermitted additions , given that I am paying full asking price for a 3bd 2ba in my area. When the seller was questioned why this wasn't mentioned in the disclosure, they say that this was done by previous owner and they had no knowledge, while I argued that since they should be knowing it since they are paying tax for a 3bd 1ba while listing it as 3bd 2ba.

Is my thinking correct ? Am I obligated to move with the prurchase, what options do I have here ?