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There seem to be conflicting answers on this question. The most relevant ones seem to be at least a year or two old, so I thought it would be worth re-asking this question.

My gut says it's ok, because there are plenty of sites out there that do this already. Every major retailer site usually has links to the manufacturer of whatever item they are selling. go to www.newegg.com and they have hundreds of links to the same site since they sell multiple items from the same brand.

Our site allows people to list a specific genre of items for sale (not porn - i'm just keeping it generic since I'm not trying to advertise) and on each item listing page, we have a link back to their website if they want. Our SEO guy is saying this is really bad and google is going to treat us as a link farm.

My gut says when we have to start limiting user useful features to our site to boost our ranking, then something is wrong. Or start jumping through hoops by trying to hide text using javascript etc

Some clients are only selling 1 to a handful of items, while a couple of our bigger clients have hundreds of items listed so will have hundreds of pages that link back to their site. I should also mention, there will be a handful of pages with the bigger clients where it may appear they have duplicate pages, because they will be selling 2 or 3 of the same item, and the only difference in the content of the page might just be a stock #. The majority of the pages though will have unique content.

So - will we be penalized in some way for having anywhere from a handful to a few hundred pages that all point to the same link? If we are penalized, what's the suggested way to handle this? We still want to give users the option to go to the clients site, and we would still like to give a link back to the clients site to help their own SE rankings.

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Short answer: no, you won't be penalised for multiple links to the same site(s).

Your SEO guy's concern in that regard isn't entirely baseless – Google, in particular, is hitting sites with suspect link profiles - but there's more to that than merely having a moderately large number of links from site A to site B.

But, use the nofollow attribute anyway:

What might be a problem is that you won't always know what you're letting people link to. Wherever site users are in a position that they can place their own links, it's advisable to apply the "nofollow" attribute. That way, you're not unintentionally endorsing something you don't necessarily trust. I'd do this even if the links are vetted before they're posted to the site: a site that's clean today could be hacked or sold and full of spam tomorrow.

The cost to your clients is that they're not getting any PageRank etc. from those links, but they are still getting the promotional aspect, i.e., people can still follow those links, so there's still a benefit to them.

If you're not already doing so, by the way, set up Google Webmaster Tools (and Bing's equivalent) and configure it to forward any notifications to an email address you check often. You'll receive warnings about any suspect linking practices, and of course they're full of a lot of other useful tools too.

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We're pretty confident our clients aren't going to be linking back to sites that can be trusted, at least as far as them not intentionally doing anything bad. Obviously we can't vouch for all of them never being hacked or whatnot. But these are all people who have paid us to list their item for sale, and these are items that cost between hundreds and thousands of dollars. So it's extremely unlikely anyone will put a link and try to do something (intentionally) shady. Is it still worth using nofollow? –  merk Oct 2 '12 at 17:48
    
We also give them a profile page that also has a link back to their site. So would it make a difference if we set the link on the item listing to nofollow, and leave the link on their profile page as is (without nofollow)? Thanks –  merk Oct 2 '12 at 17:49
    
@merk Bear in mind, you don't know what kind of SEO activities your customers indulge in: if, for whatever reason, they are caught out, better that your site is insulated from it. I'm sure the risk is minimal, but wherever users are able to post their own links, I wouldn't take chances - especially since the precaution is so easy to take. But don't take my word for it - the Google page I linked to above explicitly discusses use of nofollow where "can't or don't want to vouch for the content of pages you link to". –  GDav Oct 2 '12 at 18:48
    
@merk Oh...sorry, and yes, if you're nofollowing them, do all of them. It's very much all or none. –  GDav Oct 2 '12 at 19:16
    
The only reason I hesitate to use nofollow is that one of our selling points is how having the link to their site on our site will help with their own search engine rankings. IF we put nofollow on all their links, we can't really honestly make that claim anymore. –  merk Oct 2 '12 at 21:39
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