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Construction contracts are agreements between two parties, typically involving the exchange of money for services, like building a house. Basic contracts can be verbal, which are legally binding but difficult to prove if disputes arise. Therefore, it is crucial to get everything in writing to avoid misunderstandings. The speaker shares a personal experience from their early business days, highlighting that neglecting to formalize an agreement cost them around three thousand dollars, emphasizing the importance of written contracts in protecting oneself financially.