Hi Mark,
I'll try to be ast straightforward as possible and say that the practice of buying/selling links with the intent of passing link value (a.k.a. pagerank, linkjuice) is against Google's quality guidelines.
http://www.google.com/support/webmasters/bin/answer.py?hl=en&answer=66356
Unfortunately this is not uncommon, but there are some things you can negotiate that are within Google's quality guidelines.
If they want to purchase a link, it should be considered as advertising. If it is considered advertising, you should abide by Google's guidelines and add the "nofollow" tag to the link which essentially does not give the link any value. The only value is potential traffic from your site for the buyer(s).
Most likely, the buyer(s) will not agree to this as they are probably buying a followed link in order to pass pagerank from your site to theirs - in order to manipulate search rankings.
Would I do it? Nope, not worth the risk. However, I would be more favourable to link to them if they advertised with me. I would only link to them if they had relevant, related and good quality content that I genuinely wanted to refer my visitors to.
I'm guessing you're not a casino site, so you might want to steer clear from this transaction.
Regarding your second question:
Linking to "bad neighborhood" or poor quality sites can also affect your rankings - this is a known fact. Have a good look at their site:
- Is it a link farm
- Poor content, tons of ads/adsense
- Questionable material (adult etc..)
- Malware, spyware
- Thin affiliate site
- Do they have business contact details clearly visible
- Is it easy to contact them
- Is the content on their site being scraped from another
I think you get the picture, definitely have a read of what Rand said a few years ago:
http://www.seomoz.org/blog/more-on-nofollow-at-seomoz-and-how-bad-outbounds-can-impact-websites
That post is still very relevant and sums up the point quite nicely.
Be cautious and good luck.
Cheers,
Dave
http://www.bad-neighborhood.com/