With his permission, I am posting a message that RealEstateWebMaster's client Marc Rasmussen posted on ActiveRain this afternoon:
http://activerain.com/blogsview/131121/Excessive-Reciprocal-Linking-Google
Google is the most widely used search engine. Rightfully so since they provide the best search results. A well ranking website in Google can provide a tremendous amount of traffic. When a website links to another website Google views that link as a vote. The more votes or links a website has the more popular and important the website is in Google's eyes. You can read about how they like links here. With all else equal, website A with a higher number of quality links will rank better than website B with a fewer number of quality links. Notice I said quality links and not quantity. If you search long enough you can find a website with a few quality links outrank a competitor website with 1000's of average or low quality links. Here is a good article about this.
I get reciprocal link exchange requests daily. Before being penalized by Google I was #1 for a bunch of phrases pertaining to Sarasota real estate. So I was a big target for people who wanted to trade links with me. I would get at least 10 link exchange requests from Realtors a day. It seems people, especially in the real estate industry, are obsessed with getting links to their sites. That is understandable. Look at the number of people posting in Active Rain or other social networks. A large percentage of them are not just nice people who want to share their knowledge for nothing in return. Most of them are looking for the link juice back to their site.
Realtors need to be careful with excessive reciprocal linking. April 15th, 2007 a number of Advanced Access sites were hit with penalties from Google for having state pages filled with reciprocal links. May 9th, 2007 many real estate webmaster (a web design company) websites were hit with penalties. I was one of those sites. Myself and a handful of others have been penalized for over 45 days. It is the equivalent of being banned in Google. I am at least 4 pages down for any and all search phrases. I might as well be on the page 998.
Matt Cutts is in charge of the Google spam team. Check out the 2nd video on this page around the 5:30 mark. He comments on the real estate webmaster thread describing the Google penalties and how they have their eye on the real estate industry. They have only attacked a small number of websites. I would be willing to bet that there is more to come.
You don't want to get penalized by Google. It is no fun. Follow this webmaster guideline:
* Don't participate in link schemes designed to increase your site's ranking or PageRank. In particular, avoid links to web spammers or "bad neighborhoods" on the web, as your own ranking may be affected adversely by those links.