Published Nov 30, 2020
It’s essential to map out a budget before starting a real estate development or construction project, so stakeholders should be aware of the actual costs that the project will entail. This means paying close attention to all activities, materials, and services you will need throughout the project. These costs can be classified into hard and soft costs according to their relationship to the overall construction budget, but what exactly are they? And what specific things fall under these classifications? Let’s find out.
What are hard costs?
Hard costs are often referred to as “brick-and-mortar” costs and include everything related to a construction project’s physical development. These costs are closely related to the site, landscape, and structure of a building. The basic way to view these costs is that they’re more tangible than their counterpart, making them that much more straightforward to estimate. Next, we’ll be going through some of the typical hard costs you should expect to have in a project.
General Contractor
The simple definition of a general contractor is someone who oversees a construction project, coordinating and supervising its every aspect. They are those in direct contract with a property owner, sometimes referred to as “direct contractors” or “prime contractors.” Their work also comprises securing permits, scheduling, and hiring and overseeing subcontractors. If something goes wrong on the project site, rest assured that the general contractor will be financially responsible for correcting it. In short, they’re accountable for ensuring a smooth and timely completion of your construction project.
Electrical, Plumbing, and HVAC
These three are the primary subcontractors your general contractor will be hiring for a construction project. Electrical, plumbing, and HVAC are essential utilities needed in practically every commercial and residential building.
Materials
Of course, how could we forget the materials? Materials are the primary component of the hard costs. Without all these different materials, including structural, finish, fixtures and appliances, furnishings, and plants (optional), there wouldn’t even be a building to speak of.
What are soft costs?
Now we move on to soft costs. Soft costs are those that are not directly involved in the physical construction of a building. While they aren’t directly implicated in the physical construction, these costs are still vital in making sure the project turns out well. These costs typically include pre- and post-construction ones necessary for the building to be usable or sellable. These are the typical soft costs included in a construction project.
Architecture and Engineering
While architecture and engineering are not exactly tied to physical construction, they are absolutely critical in a construction project. Both of these are part of the pre-construction planning, serving as a guide for contractors to follow. Architecture is concerned with the visual design of a building in accordance with building laws and regulations of a state. Engineering, on the other hand, concerns itself with the structural and practical design of a building. Basically, architects come up with the what, and engineers come up with the how. These two play a key role in making sure a building is both beautiful and structurally sound.
Land and real estate
Land and real estate costs are related to the legal process, appraisal, acquisition, and assessment of land. Along with these costs are also site analyses, surveying, research, and transaction costs related to easements.
Inspection Fees
Inspection fees are vital for the constructed building to be usable and operational. These fees include building inspections and permitting costs to be paid to the government. It’s critical to pay these fees so that you may gain authorization for the project.
Local and State Taxes
Depending on the amount of money invested in a construction project, you will need to pay the corresponding taxes to local or state agencies. Labor and materials may also be taxed accordingly, and these tend to drive the costs up significantly if not managed well.
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About The Author
Terrence Tan Ting is an industrial engineer by profession but a full time writer by passion. He loves to write about a wide range of topics from many different industries thanks to his undying curiosity.