Hard Costs vs. Soft Costs in Construction
When preparing for a real estate project, there are many costs to build into your budget. Senior Project Manager Ryan Alligood discusses the two main budget categories: hard costs and soft costs.
What are Hard Costs?
Also referred to as “brick-and-mortar costs.” Either term refers to any costs associated with the physical construction of the building and any equipment that is fixed. Hard costs can be related to the building’s structure, the site and to the landscape. All labor and materials required for construction are included in hard costs. In terms of the building site, all utilities, life safety systems and equipment, HVAC systems, paving, grading, etc. are considered hard costs. Hard costs associated with the landscape are based on the architectural drawings and include grass, trees, mulch, fertilizer, etc.
Hard costs need to be discussed early in the process. Many times you do not know what hard costs will be on the budget because the space still needs to be designed.
“We try to understand the client’s expectations and then will try, based on historical numbers and past experience, and where we see the market, to plan what we should be budgeting for hard costs,” said Alligood.
Alligood admits this is a challenge. Sometimes there is sticker shock when expectations don’t align with what the market bears in terms of construction costs.
What are Soft Costs?
Soft costs are any costs that are not considered direct construction costs. Soft costs include everything from architectural and engineering fees to legal fees, pre- and post-construction expenses, permits and taxes, insurance, etc. Soft costs also include movable furniture and equipment (as opposed to fixed equipment included in hard costs) such as computer data equipment, telephone systems, etc. Depending on the project, soft costs can also include expenses that continue after completion such as building maintenance, insurance, security and other fees associated with the asset’s upkeep. It is also worthwhile to note that LEED Certification is considered a soft cost.
Which are More Expensive?
Hard costs typically make up a larger portion of the budget. Construction is inherently the biggest line item. Soft costs are an important part of the project and they typically make up a larger portion than clients realize.
What is the Difference?
Hard costs include all the work that is actually being done in the field. This includes tradesmen and the physical construction of the building. Soft costs include the planning and ideas involved for manifesting a project.