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Construction contracts are agreements between two parties, typically involving the exchange of money for services, such as building a house. While basic contracts can be verbal and legally binding, proving an agreement in case of disputes is challenging. Therefore, it's crucial to document all agreements in writing. The speaker shares a personal experience, highlighting the importance of written contracts after losing about $3,000 due to an unwritten agreement in the first six months of their business. This taught them a valuable lesson about the potential financial risks associated with relying on verbal agreements.