One other potentially major complication is that if "Grandma's house" used to be "Grandma and Grandpa's house" the three children already have inherited Grandpa's half interest in the house. That won't be changeable under any circumstances.

If all the parties to the indivision would agree to form an SCI, where they would own shares in the property rather than their current arrangement, the shareholders could try to buy out the sister-in-law's shares (presumably at a price she would accept) and then sell the property to the granddaughter. But, depending on whose daughter the granddaughter is, there could still be the same risk of someone in the family objecting to the deal as a premature distribution of the estate (i.e. Grandma's remaining interest in the house).
Cheers,
Bev