Well..

Selling links can get your site banned in Google if they find out. But they probably never will. Just be aware that it’s against their Webmaster Guidelines and people do get banned.

Saying that, lots of people seem to do it (both buying and selling).

1. I don’t know. You’re supposed to not lose anything by having outgoing links. However the more outgoing links you have, the less value each one has. If you link to say 100 “random” adult sites it’s likely that none of your links are worth anything. This is why both myself and my buddy (who convinced me about this) don’t think traditional link exchanges are worth it any more. At least not unless you’re doing it with a very old and established site with very few outgoing links or well selected links.

2. Yes, if you link to bad neighbourhoods (virus, scam, bad content) your site will/can be penalized by Google. The bigger and older site the more you can get away with.

3. That’s a personal choice, for me it’s mainly that I don’t promote sites with young looking twinks.. But otherwise I go by what’s legal here in the UK as it’s were I’m based.

This all well and good..

But if you then look at who’s dominating some of the big keywords it’s people who buy links in huge amounts and they have no outgoing links at all. They are faking their popularity and Google seems to go with it happily. No outgoing links + Huge amount of incoming links = Very popular site. Think YouTube, they don’t link to anyone but many millions of people link to them. So in the end what I say here might not matter at all. People who play by Google’s rules like myself are no longer favoured by them.