[Edited]
And what is the consideration for the quit-claim deed? Why bother if the interest is nominal? Why not keep it simple and have all the owners close.
If it is less than FMV of the in-law's shares then the bargain-sale rules apply. Part of the sale would be gift, part income. The FMV of the in-law shares 30 days before the sale had better be almost exactly the sale price 30 days later. Given the amounts involved in houses (especially for example in CA) gift tax returns would probably be required. Also the IRS might try apply the or sham-transaction step-transaction doctrines because you appear to be shifting income from one taxpayer to another without an economic basis. That seems dangerous to me.
It feels much better to figure this out at the beginning. Figure how how to split up the gain before there is a gain based at least loosely on who puts in what.
In this case given that the in-law's are not putting anything in (the kids have the down payment) I don't see a problem with the in-law's owning a nominal part of the house (1%, .1%) and seeing it all the way through to the end. A .1% interest in a capital gain can't be that large. Even a $1M gain is $10k. Don't like that make it .01%.
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