If you’ve been around real estate development long enough, you’ve probably heard someone ask, “What’s included in your pro forma’s soft costs?”
It sounds simple — until you realize everyone gives a slightly different answer. Some include financing. Others throw in marketing. A few even count land-holding costs.
So, what are soft costs — and why do they matter so much when you’re planning or budgeting a development project?
What Are Soft Costs?
In real estate development, soft costs are the expenses that fall outside of Construction Divisions 1 to 16 (the traditional CSI divisions covering materials and trades) and outside of land costs.
They include the professional services, municipal charges, legal, financing, commission and administrative expenses required to take your project from concept to completion.
Developers often express soft costs as a percentage of hard costs or as a per-square-foot (psf) allowance, especially at the early feasibility stage. That’s fine for quick analysis — as long as you’ve done the work to determine what that number should represent.
Typical Categories of Soft Costs
You’ll see different groupings depending on the project, but most pro formas organize soft costs into these main categories:
- Consultants – architects, engineers, planners, surveyors, geotechnical, and other specialists.
- Permitting and municipal fees – rezoning, development permit, building permit, Development Cost Charges (DCCs), Community Amenity Charges (CACs) and Amenity Cost Charges (ACCs) — the newest category of municipal cost if your developing in British Columbia…CACs…so many acronyms…I know, I’m sorry.
- Financing and insurance – interest, lender fees, legal, property taxes, and insurance during holding or construction.
- Marketing and sales – renderings, signage, brokerage commissions, branding, and lease-up or sales centre costs.
- Development Management and admin – internal coordination, accounting, overhead, and corporate costs.
A Note of Caution: Everyone Defines Soft Costs Differently
One of the trickiest parts about soft costs is that different developers include different things. I used to think everyone did it the same, but that isn’t the case.
Some treat marketing and financing as separate budget categories and consider only design fees and municipal costs as “soft costs”. Some add land-holding and tax expenses; others don’t.
When your talking to others in the industry to get early proforma assumptions, make sure you’re comparing apples to apples. Always clarify what’s included before relying on someone else’s percentages or per-square-foot metrics.
Here are a few other tips.
1. Sit Down With the City — Early and Often
Most municipalities will walk you through their current and upcoming fees if you ask.
- Schedule a quick meeting early in the project to confirm municipal fees, and servicing requirements.
- Ask whether any fee increases are anticipated before or during your application process.
This isn’t just about budgeting — it’s about timing and proper project planning. If development charges are set to rise next year and your drawings are nearly ready, that might be your cue to accelerate your submission and lock in the lower rates if that is an option.
2. Track Escalation and Timing
Soft costs aren’t static. Consultant fees, City fees, and insurance premiums increase over time — sometimes quietly.
If your approvals or design process will take 18–24 months, factor in escalation. Even modest annual increases add up when multiplied across multiple consultant contracts.
Keep a short note in your pro forma to track assumed escalation rates and when you expect major invoices to hit. It’s a simple way to protect your project margin from inflation risk.
3. Add Contingency to Design and Consultant Costs
No design stays frozen forever. Drawings evolve, bylaws change, and feedback from the City often triggers rounds of revision.
Even with clear consultant scopes, you should add a contingency to design-related costs — typically 5–10% — to account for inevitable adjustments and added coordination.
Examples:
- Your civil engineer revises the storm system after a City comment.
- The architect produces an extra DP submission set.
- The structural engineer updates the design after a geotechnical finding.
Experience and proper development management mitigate these increases, but some cannot be avoided. Planning for it upfront keeps your pro forma honest.
4. Revisit Soft Costs as the Project Evolves
Your first feasibility is a snapshot — not the final word. As your project advances, update soft cost assumptions to match new information.
- After pre-application: replace placeholder percentages with real consultant quotes.
- During detailed design: confirm municipal fees and new servicing requirements.
- Before tender: finalize construction-phase soft costs like financing, marketing, and project administration.
This iterative approach makes your pro forma a living tool rather than a static spreadsheet — and gives investors or lenders confidence that you’re tracking the right details.
5. Use Soft Costs Strategically
Handled properly, soft cost compiling and tracking can be a strategic decision tool, not just a budget line.
- If you know fees are rising soon, advancing a submission can save significant money.
- If you see consultant costs creeping up, you can revisit scope or re-sequence work.
- If your pro forma reveals heavy early-stage costs, you might need to put extra thought into an exit strategy if the market isn’t strong enough to proceed.
Good developers don’t just budget soft costs — they use them to guide project timing and risk decisions.
Putting It in Context
In an earlier post, Where Do You Get Your Hard Cost Assumptions, I covered the other part of the equation for preliminary feasibility — the tangible construction numbers that most developers focus on first.
But soft costs are just as important. They’re less visible, often harder to compare, and where projects may quietly lose control.
Understanding what they include, how they behave over time, and how to track them gives you a much stronger foundation for accurate, confident project planning.
Could Your Project Benefit From Expert Guidance?
If you’d like confidence before moving forward, SiteMentor Development Consultants provide industry-best development feasibility reports that identify what your property can realistically support, highlights potential constraints, and helps you determine the development strategy that makes the most sense for your goals.
