Difference Between Hard Cost and Soft Cost
Hard costs refer to those costs directly related to the construction of the building or incurred for its development, whereas, Soft Costs refer to those costs which are not directly related, i.e., they are indirectly related to the construction of the building or its development.
Cost is of different types and categorizations, and every industry has a different name given to a particular cost. Although some cost more or less remains the same and is generally considered to be the same within all sectors and industries. However, in real estate, when we talk about construction companies or developers, there is a specific name given to costs: hard and soft costs.
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These two types of costs are used widely in the construction industry. Consequently, the developers and builders are often keen to know which costs are incurred in the construction projects.
Table of contents
Hard Cost vs. Soft Cost Infographics
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Key Differences Between Hard Cost and Soft Cost
- Hard Cost is the kind of cost which is directly related to the construction of a project in the real estate industry. Costs like raw material and direct labor, which result in the construction of a building and increase the percentage of completion of a project, come under hard cost. Soft cost, on the other hand, is not directly related to the physical construction of a building and is not contributing to the construction. These are ancillary costs that are indirectly related to building construction.
- Hard cost is often referred to as brick and mortar cost encompassing the actual physical construction of a real estate development project. These costs generally cover the labor and material cost. Soft cost, on the other hand, is less obvious than hard cost as it encompasses anything and everything which is not directly related to the physical development of a building.
- A significant distinction between hard and soft costs is that hard costs don’t occur once the project completes. Whereas on the other hand, the soft cost may or may not continue to incur even after the project completion and delivery. For example, there is a legal case going on the project even after its completion. Hence, the company must incur legal and litigation fees on the project even after completion.
- Examples of HC are raw material, labor, and fixed equipment, often classified as hard costs. Examples of SC are legal fees, off-site costs, indirect labor, and moveable equipment, usually classified as soft costs. Other examples of hard costs are foundation cost, interior finish, etc.
Comparative Table
Let’s look at the Hard Cost vs. Soft Cost comparison table.
| Hard Cost | Soft Cost |
|---|---|
| It is directly related to the production and the development of a building. | It is an indirect costIndirect CostIndirect cost is the cost that cannot be directly attributed to the production. These are the necessary expenditures and can be fixed or variable in nature like the office expenses, administration, sales promotion expense, etc.read more and is not directly related to the physical production of the building or the construction project. |
| It is relatively easy to estimate as the cost is as and when incurred and is easy to forecast, depending on the progress of the project. | It is not easily quantifiable and is not easy to forecast, as it may continue even after the project has been completed and delivered. |
| It is generally tangible, and the company needs to acquire assets and other resources to complete the construction project. | It is generally intangible and can be incurred on behalf of the client or otherwise. As it is not easy to estimate |
| Raw material, brick, and motor, construction material direct labor are some examples of hard costs and are completed and not incurred when the project has been completed or even before the project has been initiated. These costs are incurred only while the project is in the construction stage. | Insurance Cost, legal cost, Set-up cost are few and is generally incurred even before the project has been initiated and started |
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