I would also recommend the tub/shower combo as it provides flexibility. Our kids are grown, but I cannot imagine having young kids without a tub available in their bath. Prior to our first build, we looked at pre-existing homes. One home immediately was a "no" as the kids bath only had a shower. I could not imagine trying to bathe our kids in the giant jetted tub in the master bath. As some one else said, sometimes older kids need to soak sore muscles. My S often would soak at the beginning of his sports season when workouts were tougher. I also think nothing feels better than a hot, steamy bath when one has a head cold. It doesn't need to be ugly. We also did the tub/shower combo with a tile surround in each of the secondary baths. There are some more attractive surrounds out there now.

I just wanted to update the thread. The bathroom has turned out fairly nice (we have not moved in yet but everything is in place) We ended up with a 24.5 inch toilet and a 16 inch custom vanity with a 10 inch Duravit sink and the Grohe concetto faucet. This gives us 32 inches of space between the toilet and vanity which does not feel to cramped. Thanks to advice we received here, we reinforced the wall near the pocket door to allow us to hang the TP holder there. I'll post pics next week as well but overall quite happy with how it turned out (still tiny but feels functional:) thanks to everyone for all their advice and input. The advice we have received on these forums has really helped us avoid a lot of issues we may not have thought about!

That rug looks perfect. Brings in the cream from the tile on the counter, the floor tile colors and your towels. The soap dispenser and bath mat are great touches too.

As a real estate appraiser I would advise to try to keep it. It will reduce the valuation by a few percent. If I were to appraise your home, I would now have to compare and adjust it from a 3 bathroom home to a 2.5. That's anywhere from $2,500 to $5,000 adjustment downwards. Understand that I don't know where you live or your real estate market. Even though there is no bedroom on the floor, it's a very usable space. At the very least, I'd put in a shower. You just never know when someone will lose their mobility. It looks like an older home. If your laundry room is in the basement, you may want to reconfigure it to bring the laundry up to the main living area. That would be an improvement in utility and the only reason why I would consider eliminating it. Hard to see everything, but you could reconfigure the doorway/entry and take over that vestibule area.