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Construction contracts are agreements between two parties, typically involving an exchange of money for services like building a house. While verbal agreements are legally binding, proving their existence after an incident can be challenging. Therefore, it's crucial to have everything in writing to avoid disputes. The speaker shares a personal lesson learned within six months of business, where a lack of written contracts resulted in a loss of about three thousand dollars, significantly impacting their finances. This experience underscores the importance of formalizing agreements to mitigate risks and losses.