Soft Costs

Soft costs, also known as indirect construction costs, are expenses related to a real estate project that are not directly tied to the physical construction activities (hard costs). These costs can be significant, typically making up 20-30% of the total construction budget, although this percentage can vary widely depending on the project.

Soft costs encompass a broad range of expenses, including:

Architectural and Engineering Fees: These are fees charged by architects, engineers, and other design professionals for their services.

Legal Fees: Costs associated with contracts, negotiations, possible zoning issues, or other legal considerations.

Permit Fees: Costs required to secure permits from local government or regulatory bodies to begin construction.

Loan Interest and Fees: The cost of borrowing money to finance the project, including origination fees, interest, and other finance charges.

Insurance: Costs associated with various types of insurance, such as liability insurance, builder's risk insurance, and title insurance.

Taxes: Costs related to property taxes during construction, sales tax on materials, and any other applicable taxes.

Marketing and Sales Costs: For commercial and residential properties intended for sale, this can include the costs of advertising, sales commissions, and model units.

Project Management Fees: Costs for the management of the project, which could include salaries and expenses for project managers.

Contingency: Funds set aside to cover unexpected costs during the project.

It's important for project planners to carefully consider and account for soft costs in their budgeting process, as these costs can be substantial and can significantly impact the overall cost of a project.