What are soft costs in construction?

What are Soft Costs in Construction?

Soft costs refer to the expenses not directly related to the physical construction of a building or infrastructure. Unlike hard costs, which cover the actual physical construction work (materials, labor, and equipment), soft costs include a wide range of other expenses that are necessary for the project's planning, design, and management.

Some examples of soft costs include:

1. Architectural and Engineering Fees: Costs associated with the design of the project, including payments for architects, engineers, and consultants.
2. Legal Fees: Expenses for legal advice, contract reviews, and any legal proceedings related to the project.
3. Permit and Licensing Fees: Costs for obtaining necessary permits and licenses from local, state, or federal agencies to comply with regulations.
4. Environmental Assessments: Expenses related to evaluating the environmental impact of the project and any costs associated with mitigating environmental concerns.
5. Insurance: Costs for various types of insurance during the planning, construction, and initial operation phases.
6. Financing Fees: Interest on construction loans, credit fees, and other costs related to financing the project.
7. Project Management and Administration: Expenses for project managers, administrative support, and other overhead costs associated with managing the construction project.
8. Marketing and Sales: For residential or commercial development projects, this includes costs related to advertising, sales commissions, and promotional events.
9. Taxes: Property taxes, sales taxes on materials and services, and other taxes applicable to the project.

Soft costs can vary significantly from project to project and often represent a substantial portion of the total project cost, sometimes as much as 20% to 30% or more, depending on the complexity and location of the project. Effective management of soft costs helps keep construction projects within budget and on schedule.