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Construction contracts are agreements between two parties, typically involving an exchange of money for services, such as building a house. The most basic contracts can be verbal and are legally binding, but proving their terms can be challenging in case of disputes. Therefore, it's essential to get everything in writing to avoid misunderstandings. The speaker shares a personal experience of losing about $3,000 due to a lack of a written contract in their first six months of business, emphasizing the importance of having clear, written agreements to prevent financial losses.