Just a idea for a visual cue for the step. We had to have a 3 foot deep (front to back) step off our dining room into a new screened porch due to an outswing patio door and wanting the porch low enough to the ground to not require high railings (building code). We edged the step with very dark bullnose tiles and nobody has any problems with the step including running kids and elderly grandparents. We have hosted over 60 people at a time passing through that porch and not one misstep. That might be a much simpler solution. You can test it out by putting blue tape across the edge of the step.

Buy seasoned used lumber for joists and have tile installer bridge between different floors with urathane caulk. Tape is applied bridging gap then urathane applied over tape. The idea is tape come's loose to slide to and fro while urathane adheare's only to sides of tile and stretche's x contract's with movements. Urathane come's in colors close enough to basic tile colors. To view example of urathane,look for parking garage expansion joints,filled gap between commercial buildings and sidewalk,brick/stone wall expansion joints and other masonary work. Even if the low room were filled with concrete the joint will have uneven movement and never be fit for normal tile. Think about required expansion joints in concrete mentioned above. Many wood floors snap togeather and float,have a look at those.

I too hope someone can weigh in on this decision even though the thread is older. We were given a bid to level the sunken living room so we can have continuous wood, rather than the sunken living room with carpet sandwiched between wood floors. I worry also about the sound difference even with insulation. Has anyone experienced this? If I don't spend over $2,000 to choose this option, is it a terrible idea to have step downs into the living room with the surface being all wood- no visual transition? Thanks to all that can help.

Tile should never be installed directly on plywood. I would remove all the tile and determine whether the subfloor is in good condition. If it is, then I would replace the flooring. If you still like / want tile, it should not go directly on the plywood. I highly recommend using Schluter Ditra, which is an uncoupling membrane. Houses move and when tile is set directly on plywood like that, the movement can cause the mortar and grout to crack and tiles to come loose. If they did not use an uncoupling membrane like Ditra, they should have at least put cement board down and tiled on that. You might be able to pull up a heating vent (if you have any) to see what's underneath. https://www.schluter.com/schluter-us/en_US/Membranes/Uncoupling-(DITRA)/Schluter®-DITRA-&-DITRA-XL/p/DITRA Also, it does not surprise me at all that someone would do this improper installation. A lot of people who do not know what they are doing (or who know what they are doing but are only interested in a quick buck from an improperly installed cosmetic change) are tiling these days. We've been house shopping and there are so many flips out there that I am positive have not been done properly. Good luck!