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Construction contracts are agreements between two parties, typically involving an exchange of services for money, such as building a house. While verbal agreements are legally binding, they are hard to prove in case of disputes. Therefore, it’s crucial to have everything documented in writing to avoid complications. The speaker shares a personal experience from their first six months in business, where the lack of a written contract led to a $3,000 loss. This incident highlighted the importance of properly drafted contracts, emphasizing the necessity of formal documentation to protect against potential financial losses.