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Construction contracts are agreements between two parties, typically exchanging money for services like building a house. The simplest contracts can be verbal, which are legally binding but difficult to prove in case of disputes. It's crucial to get everything in writing to avoid issues later on. The speaker shares a personal experience from the first six months of their business, highlighting a costly lesson learned about the importance of written contracts, resulting in a loss of about three thousand dollars. This experience underscores the necessity of formal agreements in order to protect oneself from financial loss and potential misunderstandings.