Hard Costs vs. Soft Costs: Understanding the Important Differences in Construction
When embarking on a construction project as an owner, it’s important to know construction costs come in 2 categories: hard costs vs. soft costs. These 2 categories are an important aspect of preparing your budget, building a contract, and understanding how these costs affect your bottom line.
What is the difference between hard costs vs. soft costs in construction?
Hard costs are the physical costs of construction, like materials and labor. These are all the tangible expenses of a project. These costs are easier to estimate as you build your budget because you know what materials are needed and how much before the start of construction.
Soft costs are the intangible expenses of a project and are not directly related to the construction – such as legal fees or closing costs. These costs are harder to estimate when creating a project budget.
Additionally, hard costs typically have an end and will stop occurring once construction is completed. But soft costs are different (depending on the type of project). If your project is for housing or office developments, then there will be ongoing soft costs to account for after the project is completed.
There is also a third category of costs that is often folded into soft costs: furniture, fixtures & equipment (FF&E). This is any property that is not attached to the building. It includes movable furniture and furniture that is fixed to a wall, like a shelf. The furniture fixed to a wall falls into the FF&E category when it can be removed without damaging the structure of the building.
What are some examples of hard costs in construction?
Hard costs are often called “brick and mortar” costs – everything related to the site and landscape of the project. And these are costs that can’t be avoided.
A few examples are:
Construction materials (wood, steel, insulation, etc.)
Labor
Utilities
HVAC
Painting and/or wallpaper
Paving sidewalks, parking lots, and driveways
Alarm installation
Life safety systems
Landscaping (such as grass, trees, mulch, gravel, etc.)
What are some examples of soft costs in construction?
Soft costs are items you begin paying before construction begins and after a project is completed. A few examples include:
Architectural & engineering costs
Legal fees
Permits & inspections
Taxes & insurance
Loan application fees
Building & computer equipment
Real estate fees
Furniture & telephone system
Property maintenance & security
Why is it important to understand the difference between hard costs and soft costs?
Understanding hard costs vs. soft costs is important to help you build a better budget for your project. Each of these costs will have a different effect on your budget and occur at different times in your project.
For instance, hard costs start and end with construction, but hard costs can be impacted by cost escalations and supply delays.
Whereas soft costs start once you pursue a project and won’t end until you exit the project. Sometimes there are hidden fees and expenses with soft costs that you’ll want to account for in your project budget.
Want help with preparing your project budget and understanding the different costs?
Engage an owner’s representative at the beginning of your project to have expert guidance to understand and properly budget for hard costs and soft costs.
At The Common Area, we will guide you from start to finish to protect your interests and advocate for you at every step of the project.
Email or call us to set up a meeting today!
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