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Construction contracts are agreements between two parties, typically involving the exchange of money for services such as building a house. The simplest form of a contract can be a verbal agreement, which is legally binding, although proving its existence can be difficult in case of disputes. It’s essential to document all agreements in writing to avoid complications. The speaker learned this lesson early in their business, resulting in a loss of around three thousand dollars due to not having a written contract. This experience underscored the importance of clear, written agreements to protect against financial losses and misunderstandings.