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Construction contracts are agreements between two parties, typically involving an exchange of money for a service, such as building a house. While verbal agreements are legally binding, they are difficult to prove in disputes. Therefore, it is crucial to document all agreements in writing. The speaker shares a personal experience, noting that a lack of written contracts resulted in a loss of about $3,000 within the first six months of their business. This exemplifies the importance of having clear, written contracts to avoid costly mistakes.