Development and construction costs are divided into soft costs and hard costs. Soft costs are all the indirect costs that go into a construction project such as insurance, financing charges and design fees. Soft costs exclude land acquisition and hard costs.
Hard costs are all the direct costs that go into the physical construction of a building. Hard costs include both direct labor and direct materials that result in the physical structure and built environment.
Hard costs generally represent the majority of expenses involved in construction projects, however soft costs still make up a significant portion of total expenses. The proportion of soft costs can vary in significance given the nature of the development or construction project.
Examples of soft costs include:
- Financing Fees and Interest Charges
- Architectural and Design Fees
- Insurance and Taxes
- Permitting and Inspection Fees
- Contractors General Conditions
- Developer Fees
- Marketing Expenses