Soft costs are everything a project spends that is not the physical building: design and engineering, permits and impact fees, survey and testing, legal and accounting, insurance, financing costs and interest during construction, marketing, and the developer's own overhead.
- Interest during construction is a soft cost and it grows with the schedule. A delay is a budget line, not just a disappointment.
- They are front-loaded, so they consume equity when the project has produced nothing yet and has no income to draw on.
- A rule-of-thumb percentage of hard costs is a screening tool. Real soft costs are listed, not estimated as a share.
- Some are unrecoverable if the project dies. Knowing which ones is how a go or no-go decision gets priced.
Related terms
All termsHard Costs
Hard costs are the cost of the physical building: site work, structure, envelope, systems, finishes, and the contractor's general conditions, overhead and fee.
DevelopmentImpact Fees
Impact fees are one-time charges a local government imposes on new development to fund the share of public infrastructure the new units will consume: roads, parks, schools, fire and police.
DevelopmentLand Residual Value
Land residual value is what a developer can rationally pay for a site: the value of the finished project, minus every cost to build it, minus the profit the risk demands.
Terms arrive with the writing.
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