If not this is a judgement call but may be a good opportunity assuming they have cash reserves and have documented proof of on time payments for their housing and other bills. 

So I need to pay an attorney to draft the HOA document for me then?

In hindsight, we should have at least spelled out what we needed in the document.

I took pictures and documented everything. 

On the following Monday he submits his assessment back to the insurance company for their approval.  

I'd suggest the best way to do this is likely to submit a new permit application to create an ADU.

My personal opinion is that is you are getting a lot if inquiries and then 40%+ of the people who see it are submitting applications and you are doing the rejecting of those this is not a price issue. 

That's sticky because it is a documented rental. 

As a new investor it taught me to not be afraid to submit an offer I know is right for me, don't let the competition force me to the sideline, and most of all if the deal passes the analysis check don't wait to submit an offer. 

Including documents, financial statements, etc.