Hard Cost vs Soft Cost
Hard Cost vs Soft Cost are two basic terms commonly used in the Proforma of a project to separate two distinct categories from the development’s total budget.
In any construction project’s proforma (project budget), you should find a total Soft Costs line and another of Hard Costs. Both terms can be confusing, and while the definition is clear, in practice, the line separating them can be blurry at times. Furthermore, the proportion between both varies on each project.
The difference between both terms is sometimes blurry due to the included items in the General Contractor’s budget. For instance, subcontractors’ sub permit fees, such as plumbing work, are paid by the General Contractor and included in his estimate, therefore added as part of the Hard Cost section. It’s rare and unadvised to split the GC’s budget in soft and hard cost – unless it’s a Design-Builder.
As mentioned previously, Hard costs – for the construction industry, are all those expenses directly related to the physical construction of a project; materials, fixtures, construction labor, shipping, etc.
Hard Cost Examples:
- General Contractor: including labor, overhead, and profit
- Subcontractors: such as electrical, plumbing, and mechanical, among others.
- Building Structure: all costs related to the structure, finishes, equipment, rental equipment, materials, and material shipments used to build the project.
- Site Work: any type of land movement, underground or aerial utilities, water and sewer systems, paving and grading, drains, etc.
- Landscape: all work related to landscaping such as excavations, trees and shrubs, mulch, lawns, grass, fertilizers, tree protection, shipments, and similar. (The design, such as the Landscape Architect, will fall into the Soft Costs category).
In a preliminary Proforma, Hard Costs are usually broken down into the building construction itself, built over the site, and the Site work and landscaping work varies depending on the site itself. A larger lot will require more landscaping and Site Work than a smaller one.
Soft Costs for the construction industry, on the other hand, are costs indirectly related to the construction of a project, but no less relevant as they are necessary for the project development such as the design, legal, financing, and administrative expenses. Most Soft Costs are performed before breaking ground as they are the first steps to develop a project.
Soft Cost Examples:
- Professional Fees: Architectural and Engineering (A&E) services including Mechanical, Electrical and Plumbing Engineers (MEP), Structural Engineer and Civil Engineer; Landscape Architect, Interior Designer, Lightning, or Home Automation consultant, etc.
- Permit Fees: any building and other permit fees charged by Authorities Having Jurisdiction (AHJ) such as the Building and Zoning Department, County, State, and local Utility company fees.
- Surveys and Tests: any survey and tests to the site such as Boundary Survey, Geotechnical, and Environmental inspections.
- Financing and Legal: including loan interest, banking fees, accounting expenses, attorneys and title search fees, and any other costs related to making the Real Estate project move forward.
- Administrative Fees: such as Project Management staff and software directly related to the project and made by the Owner or Developer. This may be classified as a Hard Cost when provided by the General Contractor.
- Marketing and Public Relations: including brochures, project websites, campaigns, professional photographers, or community-related activities with neighbors, if any.
The Soft Costs of a project can vary immensely due to many factors such as the development type, size, use, location, etc. As most Soft Cost expenses are made in the initial phase of a project –the Design phase– accurately defining these costs at the early stages is critical to a successful and stress-free project. In-depth research is always recommended, such as a Feasibility Study, before committing to a full design team without a completed analysis of the Scope of Work.
Hard Cost vs Soft Cost in a Proforma
This article covered essential points and explained the most significant differences between Hard Cost vs Soft Cost. However, they can quickly become more complicated than anticipated. The examples listed as the only expenses you may encounter as we can’t assume every issue or condition a project may face.
When preparing a project’s Proforma or Project Budget, these lines should always be present. However, and without adequate research on the project’s requirements, needs, and wants, most numbers will be difficult to pinpoint.
We will always recommend starting a project with in-depth research such as a Feasibility Study. Check out what this study includes or contact us for a free Guideline Session, and start with your project with the right foot!