Soft Costs
Project costs that are not tied directly to physical construction — design fees, permits, financing, legal, insurance, and other indirects.
Definition
Soft costs are project costs that are not tied directly to the physical construction of the building. They include design and engineering fees, permits and impact fees, financing costs, legal and accounting fees, insurance, project management, marketing, and FF&E (furniture, fixtures, and equipment). Soft costs typically represent 15 to 30 percent of total project cost on commercial projects.
The distinction between hard costs (the physical construction) and soft costs is important to owners, lenders, and developers, because it shapes how project budgets are structured and how financing is sized.
How soft costs is used in estimating
For estimators, soft costs are not part of the construction estimate itself but they appear in the larger project pro forma that owners use to size loans, set rents, and validate project feasibility. A contractor producing a hard-cost estimate for an owner is typically asked to fit within a hard-cost budget that has already been set based on the owner’s soft-cost assumptions and total project budget.
Soft cost discipline matters because soft cost overruns can crash a project just as decisively as hard cost overruns. Architectural redesign fees, extended construction loan interest from a delayed schedule, and additional legal expenses on a contested change order are all soft costs that grow when the project is not running cleanly. Estimators on owner teams or design-build delivery often help track both sides of the budget.
Hard costs vs soft costs
Hard costs include everything a general contractor would put in a construction estimate — material, labor, equipment, subcontractor work, general conditions, contractor overhead and profit. Soft costs include design, permits, financing, legal, insurance, marketing, FF&E, and other non-construction expenses. Lenders typically size construction loans against hard costs and require a separate budget line for soft costs. Get this distinction right in the project budget early to avoid funding shortfalls later.
Frequently asked questions
Q.What is the difference between hard costs and soft costs?
Hard costs are the costs of physical construction (material, labor, equipment, subs). Soft costs are non-construction expenses (design, permits, financing, legal, insurance, FF&E). Both go into the total project budget.
Q.What percentage of project cost is soft costs?
Typically 15 to 30 percent on commercial projects, though it varies widely. Heavily designed projects (museums, hospitals) and projects with complex financing can run higher; simple tenant improvements run lower.
Q.Are permits a soft cost?
Yes — building permits, plan-check fees, and impact fees are classic soft costs. Some contracts shift permit fees onto the contractor as a reimbursable, but the cost itself is still classified as soft.
Q.Are FF&E costs included in soft costs?
Generally yes — furniture, fixtures, and equipment are usually procured separately from construction and budgeted as soft costs. Some contracts roll FF&E into the construction contract as a separate scope, but the budget classification is still typically soft.
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