Do you have a measured floor plan? That always help people give better advice.

What kind of area are you in? If there are a lot of singles and couples, then a master suite is appreciated. Can't imagine who would want 1 1/2 small bathrooms, but there is no doubt someone.

You probably should begin with an architect, ...........and don't waste time on text here, that doesn't have any real and viable information : )

At least DRAW and dimension , to scale, what you currently have. ..........

Start with a realtor to see what your market requires. Then decide if moving is a more economical choice then speak hire an architect and put your plans to bid. Losing a bedroom does lessen your ROI typically.

I think depending on total sf of the house a 4 bedroom, 1 bath house wouldn't be very desirable. I'd go 3 bedroom, 2 bathroom.

I think a master suite with bed/bath with nice closet space sounds great.

IMO you need another bathroom but how to get it will depend on many things . Your budget , and for sure here a floor plan to scale of both the floors of the house . We did a dormer room for a really nice bathroom in a 1 1/2 story house but it required a big budget and a really good plan as to how it looked on the exterior .

Something else to consider. Do you have a bathtub in the house? Then the second bath could manage with just a shower. Or a combinations tub and shower. Not both. Too much space...

I am not a designer but grew up in a house like that and later renovated several old houses. You have two bedrooms on the first floor so going down a bedroom wouldn't hurt. I take it you have slanted ceilings so space can get eaten up quite quickly. I would definitely do a master bedroom with bath and walk-in. Try to keep wasted space to a minimum ie. large open spaces in the middle of bathroom and closet. A large airy master is more appealing than two tiny bedrooms.

If the resale of your house matters a lot to you, find out if your typical neighborhood buyer will want 2 beds and a bath on the 2d floor. I would, but if your major market is cool young singles (who will use the downstairs bedrooms for offices), master suite bedroom could be better.