Well, you *could* do that.

We don't have enough information though, to help you decide.

You should probably talk to a RE professional. What kind of homes are in your area? What kind of people are buying in your area? Will they want that office space instead of a huge, empty closet?

Why not consider just messing with the walls around your closet and bathroom (and your door placement) to see if you can get something larger and with a 5 piece bath without losing that bedroom? I think it can be done.

We've talked to a couple realtors and they were positive about it.

We're constrained on wall moving by the small bathroom and the fact that the door to the MBR can't be moved due to the stairs.

We could reconfigure the master bath and closet but we still only have an 8'x16' space to work with. Unless I'm missing something. =)

I think both layouts would have a market. But here is what I would do. Make the tiny bedroom usable either as a bedroom, or as a master closet.

So go ahead and enlarge the bath, go ahead and open to the small bedroom, leaving the door. But steal some space (maybe from the other bedroom closet?) for the small bedroom to have its own closet. And steal some space for a tiny master closet, maybe opposite the top of the stairs. Then you have a multi-purpose small room, that counts as a bedroom, but could be a nursery, sitting room, office or master closet.

You have a bedroom that is almost 19 feet long. That is plenty of room to bring the wall separating the closet/bath and bedroom "down" into the room (even leaving your door where it is) and using some of the bedroom space for closet and/or bath.

But, it sounds like, in your market, it won't matter?

Not sure about the switch from 5 to 4 BRs thing. We're going have a realtor come in and give us a definitive answer. They seem to be cool with it.

I've looked at trying to reconfigure the space, the window along the right wall just outside the closet makes it hard to pull the closet down and extend the bathroom to the right (if that makes sense).

Trying to move the entire bathroom to the right would require relocating the toilet stack and the shower which would really up the cost.

Any other thoughts?

I am guessing your joists run top to bottom in your layouts...

How are you going to drain your tub and sinks? It is unlikely it will be possible or cost-effective to drill through all the joists to join those drains to your main stack. It is more likely the plumber will want to add a stack.
(We are just finishing up a remodel with these sorts of questions. I was surprised that it was easier/more cost-effective to add a stack than it was to connect to an existing stack).

So, before you do anything definitive and "stuck" with your current toilet position, call in a plumber who does remodels to get their feedback.

Yes, the joists run top to bottom...

Good insight and the tub drain, thanks. I was under the impression that the toilet stack was significantly harder to relocate than sink and tub drains. I'll look at getting a plumber's advice before we settle on a design.

Thank you so much for your help.

It is more difficult to relocate a toilet drain. But, what I am suggesting is that they will want to just simply ADD a stack/drain for the other end of your new bathroom. If they will be adding a stack, then they can put the toilet in proximity to the new stack as well. Then, you aren't stuck with where the toilet currently sits. (Which isn't a bad placement, but might be restricting in the long run if it causes you to lose a bedroom if you didn't need to).