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Construction contracts are agreements between two parties, typically involving the exchange of money for services like building a house. While the simplest contract can be a verbal agreement, such agreements are legally binding but difficult to prove in case of disputes. It's essential to get everything in writing to avoid complications. The speaker shares a personal experience from the first six months of business, where the lack of a written contract resulted in a loss of about three thousand dollars—a costly lesson that highlighted the importance of formalizing agreements. Overall, it’s advised to always document contracts in writing to protect against potential issues.