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A client has consulted us a case where they were not able to remove all the paid links from their website, they decided to redirect everything to a new domain, and have a fresh start. The question here is, if they redirect the old website to this new domain, will the penalty be transferred to the new one as well?

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Yes, the penalty will follow the redirection

It won't help. In fact, the search results are so finicky right now that you could probably redirect your domain to a competitor and get them penalized. Basically, if your rankings dropped on April 23rd - 24th you're probably not coming back any time soon.

Check out this article by Barry Schwarz, and this comment by Google's Johnathan Mueller. Both address the what you should do in this situation, and how to submit a reconsideration request.

This article on how to avoid penalties is also worth a read (as are it's comments). The crux of the article is:-

  1. Pay attention for an “Unnatural Links” notice in your Google Webmaster Tools. If you get one, your rankings are doomed to slip if you don’t do get those unnatural links to your site removed. It’s important to note, though, that you may not get a notice before your site takes a dive (or you may not get a warning at all), so don’t assume you’ll be fine if you haven’t received a notice.

  2. Make sure you don’t have any paid links. Buying links or selling links that pass PageRank (meaning they aren’t NoFollow) is against Google’s webmaster guidelines. If you are found to be paying for links, or if it appears you’re paying for links, your site’s rankings will suffer. To be safe rather than sorry, you should ask for any paid links to be removed or made NoFollow. Contact the linking site’s webmaster or customer service department and hope they’re listening.

  3. Make sure you don’t have links from blog networks. Google has cracked down on blog networks (like BuildMyRank), which are typically basic-looking WordPress blogs with low-quality content and keyword-infused links to other sites. For more information about blog networks and Google’s update, read this article.

  4. Sites with lots of links with keyword-rich anchor text look suspicious. If the vast majority of the links to your site just happen to use one of a few keyword phrases as the anchor text, they aren’t going to look very natural to a person, nor to Google’s algorithm. What are the odds someone would choose one of your top keyword phrases when linking to you? Odds are, most people will use something like your business name, the title of your blog post, your business name, or “click here” as the anchor text when linking to you. Make sure that the anchor text in your backlinks looks diverse and not like you asked or paid people to give you links with SEO-perfect anchor text.

  5. Try to have a balance of high-quality and lower-quality links. Many sites will have a few low quality links that they never asked for, but it becomes a problem when the majority of your backlinks look iffy. Look at the root domains (like example.com) that are linking to you: What is their PageRank? Do they have a decent social media following, or are many people sharing their content in social networks? If most or all of the websites that link to you seem low quality, you may be in trouble. It’s time to build up some quality backlinks and/or try to get rid of some of the low quality links.

  6. Avoid site-wide links. These don’t look too natural, and many sites that sell links will put the links on all their site’s pages. See the keyword-y links on the middle right of this site, for example. There’s even an “add your link here” link right by them that goes to a page where you can pay – DoFollow links costs 20% more than NoFollow links, of course.

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Thank you very much! I will go read those two articles. In fact they have not got the warning yet, just that they want to somehow lower the risk. –  Sei May 14 '12 at 7:26
    
@Sei I've added an additional link about avoiding penalties which may be of interest to you. –  toomanyairmiles May 14 '12 at 11:45
    
Nice response more people should avoid 301's, nothing wrong with 404's as Matt Cutts says. –  bybe Feb 25 '13 at 18:01
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