What Are Soft Costs in Construction? A Full List

What Are Soft Costs in Construction?

Soft costs in construction are every project cost that does not become a permanent physical part of the building. They cover design and engineering fees, permits and approvals, legal and closing costs, financing and carrying charges, insurance, testing, and owner-side management. If the finished building cannot be touched as part of the asset, the cost is almost certainly soft.

Hard costs are the labor, materials, and equipment that turn into the built asset: concrete, structural steel, MEP rough-in, drywall, roofing, and finishes. The practical test is simple. If you can touch it in the finished building, it is usually a hard cost. If it is a service, fee, permit, or carrying cost, it is a soft cost. A few items sit in gray areas, such as utility connection fees, which are soft, while the site utilities themselves are hard.

What are soft costs, in budget terms? They live in the construction budget and the development pro forma, but a quantity takeoff rarely captures them. Takeoffs measure physical scope, and soft costs have no measured quantity. That is why owners and estimators track them separately, with different contingency treatment, different escalation, and different draw schedules. Lenders release hard-cost draws against inspected progress, while soft costs are often funded up front or reimbursed on a fixed schedule. For a full cost picture, a construction cost estimating scope should be paired with a soft cost budget, and developers should review both lines together in developer and owner estimating.

Hard Costs vs Soft Costs: Side-by-Side Comparison

Some items are gray areas. Site utilities are hard costs because they are installed in the ground, but utility connection fees are soft because they are paid to the authority. Temporary power is often a hard cost carried by the contractor, while the permanent utility tap fee is soft. How the contract is written decides the line, so read the general conditions before you classify.

Contingency can be split into hard-cost contingency and soft-cost contingency, and each is drawn down differently. Hard contingency covers field changes and unforeseen conditions, while soft contingency covers fee growth, permitting delays, and financing slippage. CSI MasterFormat divisions 00–01 (general requirements) and 31–33 (sitework and utilities) contain both hard and soft line items depending on how the contract is written. A commercial estimating scope and a budget estimating scope will often draw the line in different places, so confirm the basis before comparing bids.

Full Soft Costs Construction List by Category

Use this soft costs construction list as a checklist when you build a project budget. Not every line applies to every project, but every line should be considered and then marked applicable or not applicable. The list below covers the main construction soft cost examples you will encounter, grouped into the soft cost categories construction teams typically use.

Design & Engineering

• Architectural fees — base design, construction documents, and construction administration, usually a percentage of hard cost or a lump sum.
• Structural engineering — foundation, framing, and lateral design, often a separate contract from the architect.
• MEP engineering — mechanical, electrical, and plumbing design, including load calculations and equipment schedules.
• Civil engineering — site grading, drainage, stormwater, and utility design.
• Landscape architecture — planting, irrigation, and hardscape design.
• Interior design — space planning, finishes, and furniture specifications.
• Specialty consultants — acoustical, lighting, AV, code, and envelope consultants.

Approvals & Entitlements

• Zoning and land use fees — applications, hearings, and entitlement processing.
• Building permits — issued by the local authority having jurisdiction based on valuation or area.
• Plan review fees — third-party or in-house review of construction documents.
• Impact fees — charged per unit, per lot, or per square foot for schools, roads, parks, and utilities.
• Utility connection fees — water, sewer, gas, and electric tap fees paid to the utility.
• Fire department permits — sprinkler, alarm, and hazardous materials permits.
• Health department permits — required for food service, pools, and certain occupancies.
• Environmental permits — stormwater, wetlands, and air quality permits.

Legal & Closing

• Legal fees — entity formation, contracts, easements, and closing.
• Title insurance — lender and owner policies.
• Title search — lien and ownership verification.
• Property survey — boundary, topographic, and ALTA surveys.
• Environmental assessment — Phase I and, if needed, Phase II.
• Geotechnical report — borings and recommendations for foundation design.
• Appraisal — lender-required valuation.
• Recording fees — deeds, easements, and loan documents.

Financing & Carrying

• Construction loan interest — paid monthly on the drawn balance.
• Loan origination fee — lender points or flat fee at closing.
• Lender inspection fees — charged per draw inspection.
• Property tax during construction — assessed on land and improvements.
• Developer fee — compensation for development management.
• Marketing and lease-up costs — signage, advertising, leasing commissions, and concessions.

Insurance & Risk

• Builders risk — property coverage during construction.
• General liability — owner or contractor liability coverage.
• Workers compensation — required for site labor.
• Professional liability — errors and omissions coverage for design professionals.
• Payment and performance bonds — required on many public and institutional jobs.

Owner-Side Management & Testing

• Owners representative — owner's project manager or advocate.
• Construction manager — CM at risk or agency CM fees.
• Clerk of the works — daily on-site owner oversight.
• Special inspections — structural, welding, and soils inspections required by code.
• Materials testing — concrete cylinders, compaction, and steel testing.
• Commissioning — verification that systems perform as designed.
• Move-in costs — furniture, IT, signage, and relocation.

Run this checklist against a cost planning and feasibility study early, and coordinate with architect and designer cost support so design fees and consultant scope are captured before the budget is locked. To turn the checklist into a number, apply a soft cost formula construction teams use: add the applicable line items, then divide the total by the hard cost to get your soft cost percentage construction. Typical soft costs in construction usually land between 15% and 30% of hard cost, but that range moves with project type, jurisdiction, and financing structure. Note that construction insurance lines such as builders risk, general liability, and workers compensation are soft costs, not hard costs, even though they are sometimes bundled into the general contractor's contract.

Soft Cost Percentage in Construction: What to Expect

Soft costs in construction rarely land on a single number, so plan with ranges. For ground-up commercial work, soft costs often run 15–30% of hard costs. Residential projects tend to sit lower, commonly 10–20%, while complex healthcare, lab, and data center builds can push 20–35% once commissioning, special inspections, and heavy MEP design fees are included. Treat these as planning bands, not benchmarks, because region, scope, and date move them.

The drivers are predictable once you list them. Jurisdiction sets the floor through impact fees, entitlement risk, and review timelines. Financing structure adds construction loan interest, lender fees, and carrying costs that scale with schedule length, not building size. Project type matters too: a renovation carries more soft cost per dollar of hard cost than a ground-up build because existing-condition surveys and phased permits add scope. Owner requirements such as commissioning, LEED certification, and special inspections add line items that never appear in a hard cost takeoff.

Soft costs are not linear with square footage. A small tenant improvement can show 40% soft costs because design fees, permit minimums, and legal work are largely fixed. Doubling the area rarely doubles those fees. That is why a preliminary estimating approach should carry soft costs as a lump sum early, then itemize as scope firms up.

Express soft costs two ways so you never confuse the two. As a percentage of hard costs, the formula is Soft Costs ÷ Hard Costs. As a percentage of total development cost, it is Soft Costs ÷ (Hard + Soft + Land). A project at 27% of hard costs might be only 20% of total development cost once land is added. AACE estimate classes (Class 5 conceptual through Class 1 definitive) set how much accuracy you can claim. Early classes justify a percentage allowance; later classes should be itemized line by line. If you need a second set of eyes on those percentages, an elemental estimating breakdown ties soft costs to the assemblies that drive them.

Soft Cost Formula and Calculator Method

1. Start with the soft cost formula. Soft Costs = Design Fees + Permits & Impact Fees + Legal & Closing + Financing & Carrying + Insurance + Owner-Side Management + Contingency. Write it at the top of your sheet so every row maps back to a category.

2. Build one row per line item. In your construction soft cost calculator, use columns for Category, Line Item, Unit, Quantity, Unit Cost, Total, and Notes. Keep the hard cost takeoff in a separate tab so a change in interest rate or permit fee does not disturb your quantity takeoff.

3. Set the unit basis for each line. Architectural and engineering fees usually run as a percent of hard cost or as a cost per square foot. Permits are often a fixed fee or a cost per square foot. Construction loan interest is rate × drawn balance × time. Insurance is a percent of contract value. Owner-side management is often a percent of hard cost or a monthly fee.

4. Apply a waste factor and contingency. Add 5–10% contingency on soft costs for unknown conditions, and lean toward the high end in early AACE Class 4/5 estimates. Soft costs have no material waste in the physical sense, so the allowance covers scope you have not priced yet, not offcuts.

5. Run sensitivity on the big variables. Interest rate, draw schedule, and permit fees move soft costs more than any other input. A soft cost calculator that sits apart from the hard cost takeoff lets you flex those without rebuilding the estimate.

6. Reconcile before you publish. Check that each line has a unit, a quantity, and a source note. If a construction estimating consultant or an estimate review finds a line with no basis, it will not survive a lender or owner review.

Worked Example: Soft Costs for a 20,000 SF Commercial Building

Example (hypothetical numbers). A 20,000 SF ground-up commercial building with hard costs of $200/SF.

Step 1 — Hard cost total. 20,000 SF × $200/SF = $4,000,000.

Step 2 — List soft cost line items.

• Architectural/engineering fees at 8% of hard: 0.08 × $4,000,000 = $320,000
• Permits and impact fees at $12/SF: 20,000 × $12 = $240,000
• Legal and closing: $45,000
• Construction loan interest at 7% on an average drawn balance of $2,500,000 for 12 months: 0.07 × $2,500,000 = $175,000
• Loan origination fee at 1% of loan: 0.01 × $4,000,000 = $40,000
• Builders risk and general liability: $35,000
• Owner's representative at 3% of hard: 0.03 × $4,000,000 = $120,000
• Testing and commissioning: $30,000
• Contingency at 8% of soft costs: 0.08 × $1,005,000 = $80,400

Step 3 — Sum soft costs. $320,000 + $240,000 + $45,000 + $175,000 + $40,000 + $35,000 + $120,000 + $30,000 + $80,400 = $1,085,400.

Step 4 — Soft cost percentage of hard costs. $1,085,400 ÷ $4,000,000 = 27.1%.

Step 5 — Total development cost before land. $4,000,000 + $1,085,400 = $5,085,400.

That 27.1% sits inside the 15–30% commercial band, which is a useful sanity check. If your number lands far outside the band, check the loan interest math and the permit basis first. For a project this size, a commercial estimating breakdown and a full construction cost estimate should reconcile to the same hard cost base, or the soft cost percentage is meaningless.

How Soft Costs Differ by Project Type

Soft costs do not scale linearly with hard costs, and the mix shifts sharply by building type. A single-family house and a hospital can have the same hard cost per square foot and completely different soft cost structures. Below is how the main categories behave.

Residential: Single-Family and ADU

On a house or an ADU construction cost estimating budget, soft costs are a lower percentage of total cost but still include architectural fees, permits, a property survey, title insurance, and sometimes HOA review fees. Impact fees vary widely by jurisdiction and can range from a few thousand dollars to well over $20,000 per unit depending on the city and the utility district. Because the hard cost base is small, a single $15,000 permit fee can move the percentage noticeably. Construction insurance on a single house is usually a builders risk policy plus general liability, and both are soft costs that belong in the budget from day one.

Multi-Family and Mixed-Use

Multi-family and mixed-use projects add developer fees, lease-up marketing, property tax during construction, and higher legal costs for condominium documents or zoning bonuses. On a multi-family estimating services engagement, legal and entitlement work alone can run into six figures on a contested rezoning. Lease-up costs are often underestimated because they continue after the certificate of occupancy. Construction insurance here is more complex: wrap-up policies, higher limits, and sometimes a separate owner's protective liability policy all add to the soft cost total.

Commercial Office, Retail, and Industrial

Commercial office and retail projects carry tenant improvement allowances, landlord work letters, and commissioning as common soft costs. Permits and impact fees can be significant, especially where a traffic study triggers road improvements. Industrial and warehouse projects are the reverse: design fees are lower per square foot, but geotechnical reports, environmental assessments, and utility connection fees dominate. Civil engineering on a warehouse construction estimating job often exceeds the architectural fee. Construction insurance for industrial work may include pollution liability or contractor's pollution liability, which is rarely needed on residential jobs.

Healthcare, Data Center, and Lab

Healthcare, data center, and lab projects push soft costs to the high end. Special inspections, commissioning, validation, and redundant utility studies are not optional. A healthcare construction estimating scope may require an independent commissioning agent, infection control risk assessment, and medical equipment planning, all before construction starts. Construction insurance on these projects often includes professional liability for the design team and higher limits for business interruption during commissioning.

Renovation and Tenant Improvement

Renovation and tenant improvement soft costs can exceed 30% of total project cost because existing conditions require more surveys, hazardous material testing, and code upgrades. Asbestos and lead paint testing, structural probes, and MEP condition assessments are common. Every unknown found in a wall becomes a change order and a soft cost line. Construction insurance for renovation work may require a builder's risk policy that covers existing structure and improvements, and the premium is often higher than for new construction because the risk of water damage or fire during demolition is greater. To compare your project against benchmarks, calculate your soft cost percentage construction by dividing total soft costs by hard costs, and use the same soft cost formula construction across every project type so the comparison is apples to apples.

Soft Costs for Contractors: What You Carry vs What the Owner Carries

• Burying owner soft costs in your bid. Design fees, land closing, financing, and often impact fees belong to the owner. If you include them in your number, you lose the bid or you own a cost you cannot control. Keep owner-carried soft costs out of your scope.

• Not breaking out permit fees when asked. If the owner asks for a separate soft cost line on the bid form, list permit fees, bonds, and builders risk individually if you are providing them. A general contractor estimating bid that lumps permits into general conditions is hard for an owner to compare against other bidders.

• Double-counting permits. If the owner pays for the permit directly, do not include it in your general conditions. This is one of the most common soft costs for contractors to get wrong, and it shows up as an inflated bid or a credit fight at closeout.

• Forgetting your own overhead soft costs. Bid preparation, bonding, general liability, and temporary facilities are soft costs you carry in overhead. A subcontractor estimating services review should confirm these are recovered in your markup, not absorbed.

• Ignoring the construction manager's fee and contingency. When a construction manager at risk runs the job, their fee and contingency are soft costs from the owner's perspective. If you are the CM, price them explicitly. If you are a trade contractor, understand that the CM's contingency is not your contingency.

• Assuming builders risk is always the owner's. On some contracts the contractor carries builders risk. Read the insurance exhibit before you price the job.

How to Estimate Soft Costs Accurately

1. Build a checklist and assign a responsible party. List every soft cost category and mark who pays: owner, contractor, or shared. This prevents both double-counting and gaps. Use a budget estimating services template as the starting structure.

2. Start with historical percentages, then replace them with quotes. For early estimates, apply percentages of hard cost. As design progresses, replace each percentage with an actual proposal or fee schedule. A feasibility study estimating exercise typically stops at the percentage stage.

3. Match the design fee method to the AACE estimate class. For AACE Class 4 and Class 5 estimates, use a percentage of hard costs for design fees. For Class 2 and Class 1, switch to hourly or lump-sum proposals from the design team. The AACE estimate class tells you how much definition you have and therefore how precise the fee can be.

4. Call the jurisdiction for permits and impact fees. Pull the fee schedule or call the building department. Do not guess. Permit fees are published, and impact fees are usually calculated from a table based on use and square footage.

5. Build a draw schedule for financing costs. Calculate interest on the average outstanding balance, not the total loan amount. If you draw $2,000,000 evenly over 12 months at 8%, the average outstanding balance is roughly $1,000,000, so interest is about $80,000, not $160,000.

6. Apply a contingency to soft costs. A 5–10% contingency for unknown conditions is standard on soft costs, separate from the hard cost contingency. Soft costs have their own unknowns: additional surveys, extended design, and legal challenges.

7. Review at every design milestone. Update the construction budget soft costs at schematic design, design development, and construction documents. A soft cost that was 8% at schematic can become 14% at CD if entitlements drag.

Common Mistakes in Soft Cost Estimating

• Forgetting to escalate soft costs for multi-year projects. Design fees, permit fees, and legal retainers are quoted in current dollars, but a 30-month schedule means you will pay them 12 to 30 months from now. Apply the same escalation rate you use for hard costs to design fees, permitting, and professional services, or your soft cost categories in construction will be short by the time the invoices arrive.
• Using a single soft cost percentage for every project. A 20,000 SF tenant improvement in a leased shell has almost no land, financing, or impact fee exposure. A ground-up mixed-use project in an entitlement-heavy jurisdiction can carry soft costs well above the hard cost percentage you assumed. Build the construction soft costs breakdown line by line before you apply any percentage.
• Double-counting permits, insurance, or temporary facilities. General conditions often include permit fees, builder's risk, and temporary utilities. If the owner's soft cost schedule lists the same items, you have counted them twice and overstated the budget. Reconcile the GC's general conditions against the owner's soft cost list before you finalize.
• Ignoring the time value of money on construction loan interest. Interest is charged on outstanding draws, not the total loan amount. A slow draw schedule or a delayed first draw changes the interest cost more than the rate does. Model interest month by month against the draw schedule.
• Underestimating legal fees and closing costs on complex deals. Public-private partnerships, zoning variances, easements, and multi-party land assemblages generate legal work that a standard closing cost allowance will not cover. Ask counsel for a scope-based estimate, not a flat percentage.
• Leaving out a soft cost contingency. Jurisdictions add late fees, plan review comments force redesign, and lenders add conditions. Carry a separate soft cost contingency and do not blend it into the hard cost contingency. If you need a second set of eyes on the numbers, an estimate review will catch omissions before you submit. Changes that flow from those reviews often land as change order items later.

Soft Costs in the Development Pro Forma

A pro forma lists every source and use of capital on one page. Soft costs sit in the uses column next to land, hard construction, and financing costs, and they are usually the second-largest use after hard costs. Lenders read the soft cost block first because it tells them how much of the loan is going to fees rather than bricks.

Soft costs move return metrics directly. Every dollar of soft cost is a dollar that is not available for debt service or distribution, so a higher soft cost load reduces net operating income and cash-on-cash return. On a stabilized asset, a soft cost overrun of a few hundred thousand dollars can push the development spread below the lender's minimum.

Most construction lenders require a detailed soft cost breakdown and will cap specific line items. Loan origination fee, interest reserve, and legal fees are commonly capped as a percentage of the loan. Interest during construction is itself a soft cost, and it compounds: interest accrues on previously capitalized interest if the reserve is structured that way. Build the reserve from the draw schedule, not from a rule of thumb.

Developers should stress-test soft costs for two things: permit delays and interest rate changes. A six-month entitlement delay adds carrying costs, property tax, and interest with no offsetting revenue. Run the pro forma at a higher rate and a longer schedule at the same time. For a full soft cost build for soft costs real estate development, see our developer estimating work, and for hold-period return modeling see investor estimating.

Where Soft Costs Sit in the Construction Budget

The construction budget is one slice of the overall development budget. Soft costs may be tracked inside it or in a parallel owner budget, and the choice changes who sees which line. On a GC bid, the construction budget is the scope of work you are pricing. The owner's total budget adds land, financing, professional fees, and soft costs on top.

UniFormat organizes cost by building element rather than trade: A Substructure, B Shell, C Interiors, D Services, E Equipment & Furnishings, F Special Construction, G Building Sitework, and Z General. Soft costs live almost entirely in Z General, which captures permits, professional services, temporary facilities, and project-level requirements that do not attach to a physical element. Elemental estimating in UniFormat keeps soft costs visible instead of buried in a division.

CSI MasterFormat covers many soft cost items in Divisions 00 and 01. Division 00 holds procurement and contracting requirements, including bonds and insurance certificates. Division 01 holds general requirements: temporary facilities, project management, closeout, and permitting. If your construction budget soft costs are not broken out in Division 01, they are probably hiding in your general conditions markup.

A GC bid budget normally excludes owner soft costs such as land, financing, and design fees. The owner's total budget must include them, or the project is underfunded from day one. Where the contractor manages a soft cost item, it can appear on the schedule of values as its own line. Our schedule of values preparation service handles that split, and cost control tracks it through the job.

When to Get a Professional Soft Cost Estimate

If you are preparing a pro forma for lenders or investors, you need a detailed soft cost breakdown with backup. Lenders want to see line items for permits, impact fees, professional services, and contingency, not a lump sum. A professional estimate gives you that detail and the documentation to support it. Our developer and owner estimating service is built for this stage.

If your project is in an unfamiliar jurisdiction, a local estimator can pull actual permit and impact fee schedules. Soft costs like utility connection fees, school impact fees, and park dedications vary widely by city and county. Guessing these numbers can throw your budget off by hundreds of thousands of dollars. An estimator who works in that market knows where to look and how to calculate them.

If you are comparing multiple sites or design options, a professional estimate helps you see the true total development cost. Hard costs may look similar, but soft costs can differ based on jurisdiction, utility availability, and entitlement risk. A side-by-side soft cost comparison shows which site is actually cheaper. Our feasibility study estimating service supports this kind of analysis.

If you are a contractor bidding a project with owner-carried soft costs, an estimate review can catch double-counting or omissions. You do not want to include permit fees in your bid if the owner is pulling them, and you do not want to miss a required payment. Our estimate review service checks the scope split between hard and soft costs.

Scope Precision Estimate offers same-day quotes, bid-ready in 48 hours, and 20% off for new clients. Turnaround is 24–48 hours for most projects, with rush available. If you need a construction soft cost calculator or help with how to estimate soft costs, our team can build a line-item estimate from your plans and pro forma. Upload your documents to get an estimate and we will confirm scope and timing.