Ha, I just dealt with this (although mine is in a corner, not an alcove.) What a pain!

We had a top made for us out of quartzite (like marble) and while I patterned the vanity perfectly, I assumed the corner it sat in would be square. It was NOT. I had planned to tile the wall first, then install the vanity and caulk the edges.

What we ended up doing was basically what the kitchen counter granite installers do: We cut into the drywall, just a notch the size of the countertop, and slid the protruding corner into the notch. Then tiled down to the counter (rather than behind it) like a kitchen counter.

So that's one option for you: get your granite counter cut larger and recess the front. But WAIT!!! You haven't had the granite cut yet? Why not just template the exact space and get the granite cut to fit perfectly?

Otherwise, are you planning to tile the walls around the alcove?
a) you could choose fat tile, which would cover the caulk line or gap.
b) even if you choose thin tile, only 1/8" of your 1/4" caulked gap will show under the tile :)

Yes, when they make the template for the granite, they can make it fit the space. I've never met a house that was entirely square. Half an inch off is not unusual.

Just an FYI regarding templating.... In our case, it cost less for us to template & install the vanity top ourselves, rather than the fabricator come all this way out here for such a small job. Might be worth asking. On a $3k kitchen, $75 or $100 extra isn't much, but on a couple-hundred-dollar granite vanity top.... might be worth it. You can do a template with cardboard (cut it too narrow and then build out the edges to an exact fit with other pieces hot-glued onto the main piece) or hot glue and strips of luan.

thanks for your insights. we have not even started the bath reno yet. I just keep thinking of all of the small issues that can turn into time-consuming projects.

I am going to cost out the install separately and may try to install myself. and I can just imagine trying to get a heavy piece of granite with a sink attached back into an alcove without damaging the walls too much.

we had not planned on any backsplash on the sides, but I will keep that as a backup plan to cover the gaps. thanks for your idea of cutting into the drywall and slipping the granite into it. I will keep that in mind when I measure and template.

One thing to remember if you decide to get the granite cut to fit the space: the vanity will still sit at a slight angle which could impact the floor tiles. We had this issue with basketweave tiles on the floor. The tile appeared straight at the tub but did not line up evenly with the vanity (which was parallel to the tub). You probably will not notice anything amiss if you use large format tiles.