Google on Paid Links & NoFollow

[mandy]

    * Google is “perfectly fine with people buying and selling links” but prefers them to use the nofollow attribute when doing so.
    * It is difficult for Google to identify a web site selling the odd link, or a blogger adding a contextual link, in exchange for payment.
    * Google looks for are patterns that suggest money is being exchanged for links. A casino site buying a link from a blog about gardening, would raise a red flag, said Lasnik. As would an influx of links in a single day.
    * Links from one relevant site to another, would not likely cause a reaction from Google


Penalties for Link Buying:

    * Punishments for buying and selling links vary.
    * Sellers that offer lots of links for sale, could find their outbound links filtered on a page level, or site-wide.
    * Buyers, purchasing links from dozens of locations, could trigger Google to filter out the value of their inbound links.
    * In the case of linking schemes,the link seller to have their ability to pass PageRank stripped away.

full article: http://www.searchenginejournal.com/?p=4473#more-4473