The analysis won't be perfect down to the penny, you just execute on meeting your investing needs. 

I will look up on how to properly clean it up and send my friend who's in the area to do it.

Likewise, the fact that they didn't properly realize how good they had it with you for so long isn't your problem.

I was told this was not proper. 

Much more likely to make a mistake and buy in the wrong area and overpay if you don't do the proper research.I generally only recommend to more seasoned investors, but it can definitely be done.

(I)(1) The terms "real estate broker," "real estate salesperson," "foreign real estate dealer," and "foreign real estate salesperson" do not include a person, partnership, association, limited liability company, limited liability partnership, or corporation, or the regular employees thereof, who perform any of the acts or transactions specified or comprehended in division (A) of this section, whether or not for, or with the intention, in expectation, or upon the promise of receiving or collecting a fee, commission, or other valuable consideration:(a) With reference to real estate situated in this state owned by such person, partnership, association, limited liability company, limited liability partnership, or corporation, or acquired on its own account in the regular course of, or as an incident to the management of the property and the investment in it;(b) As receiver or trustee in bankruptcy, as guardian, executor, administrator, trustee, assignee, commissioner, or any person doing the things mentioned in this section, under authority or appointment of, or incident to a proceeding in, any court, or as a bona fide public officer, or as executor, trustee, or other bona fide fiduciary under any trust agreement, deed of trust, will, or other instrument that has been executed in good faith creating a like bona fide fiduciary obligation;(c) As a public officer while performing the officer's official duties;(d) As an attorney at law in the performance of the attorney's duties;(e) As a person who engages in the brokering of the sale of business assets, not including the sale, lease, exchange, or assignment of any interest in real estate;(f) As a person who engages in the sale of manufactured homes as defined in division (C)(4) of section 3781.06 of the Revised Code, or of mobile homes as defined in division (O) of section 4501.01 of the Revised Code, provided the sale does not include the negotiation, sale, lease, exchange, or assignment of any interest in real estate;(g) As a person who engages in the sale of commercial real estate pursuant to the requirements of section 4735.022 of the Revised Code.(2) A person, partnership, association, limited liability company, limited liability partnership, or corporation exempt under division (I)(1)(a) of this section shall be limited by the legal interest in the real estate held by that person or entity to performing any of the acts or transactions specified in or comprehended by division (A) of this section.

they purchased the property to sell and that disallows it for 1031.The more proper way to do this would be to sell as yourselves and buy the replacement property as yourselves (letting your son help direct what you buy). 

I have no idea if Zillow is accurate or not but more modern homes in the neighborhood are selling for $200-$300k so it may be a good rough estimate as I haven't had it properly appraised yet.

You need it properly converted with permits to have it zoned as a living space (second unit) otherwise you will violate your insurance.

(These numbers are purely imaginary, but you get the point -- it's a basic risk/return analysis).b) Potential Stick: If you execute a purchase and sale agreement, you may be exposed to legal risk that could cost you far more than the money you spent on the option contract.The above is strictly for informational and discussion purposes and is NOT a recommendation for you to take any particular action.