They are using a small bedroom with a small closet relative to "normal" houses. 

I own an older house that's in decent shape but needs some renovations including adding dormer to our attic (or just raise the entire roof possibly depending on expense) to facilitate a closet and more headroom creating an actual bedroom. 

It has duck access from the bedroom closet Hope this is the answer of your questions.

With simply adding a wall in one bedroom then cutting out a door in the hallway would add a bedroom for us (somehow sticking a closet in there).

There doesnt seem to be anything below it, it is about a foot away from a closet door openi ng 

Ignoring the facts she's verbally disclosed, she's telling you there are skeletons in her closet. 

@Katie Huynh Base on my recent experience with making an offer for foreclosure property..Asset manager will review offers and usually will only discount $10k-$15k at a time and pick the highest offer that are closet to list price.

You can frame in a closet and not finish it.

We got calls/ texts (typically in the middle of the night), more like rants, for closet door off tracks, other tenants leaving toys out front, chalk marks on asphalt, leaves on lawn (typically gardener was there every 2 weeks), etc.  

By adding the wall and closets we converted the property to a split floor-plan while also adding a 3rd bedroom.