OK.
I went to the city office directly and talked to one of the inspectors
and few other guys in community development, construction and
engineering dept. They said, once the construction is done they are
not going to give any permit and they are not going to come to the
house to check it. They also said the previous owner completed the
basement and may not have reported to city to save some taxes. I asked
is part of the house "ILLEGAL". They said it is not called illegal but
improper, also said there are quiet a no of people who don't report
their enhancements to their houses which may involve adding a bathroom
or bedroom etc. The risk is whether they have done the proper electic
and plumbing work or not. I asked him how to ensure whether it is done
in a proper way. He told me it is very difficult to find out once it
is done. It may involve tearingup the sheets covering the electric and
plumbing work. He also advised me to ask the seller to put a $10k in
an escrow account which cover up the costs if anything happens in the
next 3 or 5 years. If nothing happens at the end of 3 or 5 years,
seller will get the money back.

Anyways, my realtor brought a market analysis of the houses in this
area (Plymouth, Minnesota) and we came to an amount which we can
offer. We offred the seller 5k more than the average selling price and
also I bear all the minor repairs in the house. The average price is
20k less than the seller's list price. Repairs in the house a One
of the closet door broke may need a replacement, all the sloset doors
are stick to the carpet and are difficult to open and they may need a
half inch cut at the bottom of the doors. Family room doesn't have the
the air intake, hot air comes from the furnace but there is no vent to
take the air from that room. It's a closed room. Back side of the
house some of the vinyl sheets came out of the wall. It needs a fix
and there are many other small things. Those I can do myself. (My
realtor said the total may cost around $3000). 2 days back we bid with
condition-asking the seller to put the money $10k in escrow account.
Seller rejected the bid asking $10k more and didn't like the condition
of keeping the money in escrow account.

That's what happend in the last week.

The house is 1994 built, split level completely finished (2260sft) in
Plymouth, Minnesota. (suburb of Minneapolis)

-Basha