If a site linking to mine gets caught selling links, what happens to my site?

Matt's answer:

MATT CUTTS: Today’s question comes from New York City. And Sergey L. asks, if some site that is linking to my site gets penalized for purchasing links, will my site get affected by that penalty? Well, normally what happens is when we find a site that’s selling links, we say, OK, this is a link seller. Its PageRank goes down by 30%, 40%, 50%, as a visible indicator that we’ve lost trust in that domain. And it typically also loses ability to send PageRank going forward. So for example, suppose we have a selling site that is selling links to a buying site. And the selling site also happens to link to you. The sort of situation that might happen is we find out that that’s a link seller. And as a result, we just don’t trust the outgoing links from that site. So the most likely scenario is if there is a link selling site and they get caught for selling links, and they just happen to be linking to you, the value of that link that the site was providing, it just goes away. So it’s the sort of thing where maybe you’re benefiting get a little bit of PageRank from that site. Now, since we don’t trust that site, you wouldn’t be getting that benefit. So typically, it’s not the sort of thing where you get affected by that penalty in the sense that you get demoted or anything harsh like that. It’s just you no longer get the benefit of the link from that site, because we don’t trust it anymore.

by Matt Cutts - Google's Head of Search Quality Team

Original video: