Soft Costs and Hard Costs in Real Estate

The real estate industry incurs many types of costs. There are direct costs and there are indirect costs. These costs can be subdivided into two types, soft costs and hard costs, based on their characteristics.

Each of these will be discussed in detail.

Soft Cost in Real Estate

Costs are classified differently by different industries and are referred to in different ways, although some costs are more or less the same and are generally considered to be of the same.

Nevertheless, when it comes to real estate, when it comes to construction companies or developers, there are two ways in which costs can be described: hard cost and soft cost.

The term “soft costs” refers to those expenses indirectly associated with the construction project. These expenses include the cost of paperwork, filings, and permitting, not to mention the cost of people to complete all of these tasks. These expenses might be “soft,” but they can have a big impact.

Soft costs are not directly related to the physical construction of a building and do not contribute to it. They are an ancillary cost that affects the construction of the building indirectly.

Soft costs are less evident than hard costs because they include anything and everything that does not directly contribute to the construction of a building.

Hard Cost in Real Estate

Costs are classified differently by different industries and are referred to in different ways, although some costs are more or less the same and are generally considered to be of the same.

Nevertheless, when it comes to real estate, when it comes to construction companies or developers, there are two ways in which costs can be described: hard cost and soft cost.

Often called, “brick-and-mortar costs”, hard costs refer to the building’s structure, the construction site, and the landscape. These costs are more tangible, so they are easier to estimate when creating a project budget.

Hard costs include all the labor and materials needed for a project to be completed.

In the real estate industry, hard cost refers to supplies like raw materials and indirect labor, which are directly associated with the construction of buildings and are contributing to a project’s completion rate.

As a general rule, hard costs represent labor and material costs associated with a real estate development project.