Breakdown of Soft Costs in Construction Projects

What Can be Classified as Soft Costs in Construction?

Soft Costs constitute a big portion of your construction costs. A construction project is possible due to the soft costs, that when added to the hard cost and land cost, you will have the total cost amount for your construction project. Soft costs are traditionally non-seen items that composed the initial part of developing a construction project. Typically you can expect that soft costs are only 30% of the total construction cost and the remaining is related to hard costs.

Architectural and Design Fees

Drawings and prints
Drawings and prints. Photo Getty Images/Hero Images

The architectural and design fee includes costs incurred on feasibility studies, master planning, design costs, and all other cost included from schematic to project completion. These costs will vary depending on the project, size, the larger the project that smaller this percentage can be.

Inspection Fees

construction testing
Inspection fees. Photo GettyImages/David Sailors

Cost of inspections, permits and fees paid to local government. These are costs required to be paid to government agencies authorizing you to build the project. This can be related to permitting applications, costs to file the permit, occupancy ​permits and related transactions.

Land and Real Estate Costs

Real estate
Real estate. Photo GettyImages/Thomas Jackson

Land costs associated with legal process, appraisal, real estate, land acquisition, assessments or improvements to land related issues. All real estate research costs including surveying plats, lot assessment and all related cost including transaction costs related to easements and ROWs. Do not forget to add the cost of land for temporary staging areas that can be required along the route or off-site.

Off-Site Construction

Other costs
Other costs. Getty Images / Erik Isakson

This is one is debatable. Some projects require to improve conditions in their neighborhood or to complete improvements to local infrastructure as part of the project itself. Some construction consultant will claim that since this is are not strictly related to the project, those costs cannot be capitalized thus they can be classified as soft costs.

Construction Equipment, Rentals and Tools

Rentals. Getty Images/Martin Barraud

Equipment not being incorporated in the final project delivery. Can you consider the office equipment, office trailers, and all other equipment as soft costs? Certainly, even cellphone, radio communication systems, staging area equipment and other necessary equipment can be included in this section.

Loan Interests and Accounting Fees

Loans. Getty Images/Glow Images, Inc

Every transaction will cost and even having the line of credit to cover all your costs can be classified as soft costs. All cost of loan generated interests. Bank transaction for every need including cashier check costs can be also classified as soft costs.All accounting expenses and cost incurred during the development of the construction process. Always remember to include the cost of accounting and timekeeping software. Construction loan commitment fees, mortgage broker fee, permanent commitment fee.

Project Management

Project management
Project management. Getty Images/David Malan

Staff required to handle all construction related documentation and drawings. All your staff needs to be included here and even the security and safety staff can be considered as soft cost. Be sure to add the cost of temp staffing, runners, and all supporting staff even when they are not located on site. This is very important if you have rates that include the cost of principals and other management staff from your company's HQ.

Construction Insurances and Professional Dues

Construction Insurance
Construction Insurance. Photo GettyImages/ PeopleImages

All required insurances for the completion of the construction project including but not limited to: bid bonds, payment bonds, professional liability insurance, performance bonds and sub-guard policies. These policies and insurances are some of the most commonly used ones, but every owner will have its own requirement. Remember these insurances will cost a certain percentage from the total project costs and will be dependent on your past performance. More

Local and State Taxes

Tax. Getty Images/Peter Dazeley

Payments and fees required by state and local agencies depending on the amount of money being invested in the construction. Material and labor rates will have taxes imposed that can significantly increase the cost of the project if not considered properly. Make sure your accounting system captures the taxes amounts properly as that will help you when filing your taxes at the end of the year.

Advertising and Public Relations

Ads. Getty Images/Danil Rudenko / EyeEm

Marketing and advertising cost including brochures, public relations and general marketing campaigns. Make sure to include the material for those open houses and community-related activities to engage all neighbors. It is critical to have the right communication and socialization plan to reach to the right customer.

Additional Works and Studies

Construction testing
Construction testing. Getty Images/BartCo

Some of the initial testing and feasibility studies are considered soft costs. The following items but not limited to are classified as soft costs:

  • Additional cost estimates
  • Surveys
  • Traffic studies
  • Geotechnical studies
  • Testing consultants
  • Professional services
  • Health and safety consultants
  • Environmental studies and assessments
  • Home Owners/ Tenant start-up fees
  • Other start start-up and initial fees that are part of the project kickoff process

These studies are normally carried out during the due-diligence part of the project so bear in mind that you will likely need to bear this costs at the beginning of the project.