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Construction contracts are agreements between two parties, typically involving the exchange of money for services like building a house. The simplest contracts can be verbal, which are legally binding; however, proving a verbal agreement can be challenging in case of disputes. Therefore, it's crucial to get all agreements in writing to avoid complications. The speaker shares a personal experience from their early business days, costing them $3,000 due to a lack of a written contract. This experience emphasizes the importance of formalizing agreements to protect oneself financially.