Not specific to Pitt, but in general try not to comp 2 beds to 3 beds if at all possible.  3 to 4 is usually anywhere from $2k to $5k 4 to 5 and beyond that is usually negligible, and square footage is what counts. 

Do plenty of people do it, yes absolutely......Is the risk worth the reward......To be clear The risk is jail time starting with negligent manslaughter.In short find out what it would take to convert it to a legal unit.

I’m guessing negligence on the tenants part is on the tenant to repair?

Have your landlord insurance and umbrella policy and keep your properties in good repair (eliminating/reducing risk of negligence,etc type issues).Here are a bunch of prior discussion threads on LLC and insurance which I think you will find useful. 

Also, the departing tenant will owe us a considerable sum above the security deposit for damages he willfully or negligently caused to the property.

Her mom kept sending us long long texts and photos talking about how much she had done for the townhouse and how negligent we are! 

Additionally anything over $150 caused by the tenants negligence will also be their responsibility.

Those are somewhat negligible, but in the end will add up to still achieving the result you want at a lower total cost.

The realtor truly dropped the ball (could definitly argue negligence) and if push comes to shove the real estate brokerage/firm likely has measures to take care of this.

I'm told litigants usually sue the owners and the corporate entities, both by default, the owner personally for negligence, unless I can show I have absolutely no personal involvement with operations.