Should I add the NOFOLLOW attribute to a paid link (ad)?

First of all you should really analyze the quality of the site you want to link to. If you think something is wrong with their site - black hat related(e.g. cloaking, spammy, link farms etc.) you shouldn't link to them, because you could get penalized. Most of the time these kind of "link builders"(the ones that get you penalized) don't pay such an amount of money but you have to be sure, just in case. The nofollow attribute, as all the other people are saying it's just a quality guideline you are advised to follow. There is a certain degree of danger in breaking it. If someone reports it, you and your buyer could get penalized. But this is also unlikely to happen. ”The reporter” would have to know the name of your site and the one of your buyer. So from a business man point of view eliminating the nofollow attribute is the right way to go. But ethically or from Google's point of view is a definitely NO. It is all up to you. The price can be settled only by weighing the amount of money compared to the benefits you offer and the risks you assume. If your site has a high page rank and a lot of visitors than you could ask for more. But if you don't think your link adds much more value to their business I guess this price would be the right one.

Yes.  Google's Matt Cutts has stated a number of times in the past that you should indeed add rel="nofollow" to paid links.  It's more of a courtesy to search quality than anything, since link juice is no longer redirected away from nofollow links to your other links (as of last December-ish), but it will also keep you and the advertiser safe from being penalized for selling/buying links. here's a direct quote What if a site wants to buy links purely for visitor click traffic, to build buzz, or to support another site? In that situation, I would use the rel=”nofollow” attribute. The nofollow tag allows a site to add a link that abstains from being an editorial vote. Using nofollow is a safe way to buy links, because it’s a machine-readable way to specify that a link doesn’t have to be counted as a vote by a search engine. http://www.mattcutts.com/blog/text-links-and-pagerank/

I'm not going to get into the paid link debate. However, if it's a related link to your sites content and you believe in the product the link offers and appears natural, then don't worry about the nofollow. I don't use nofollows because I don't believe in them. I think I heard Matt say once that only 2% of website use the nofollow attribute; the other 98% are still in the index. Don't worry about it. Move on.

It's essential that paid links are nofollowed but this is more important for the recipient site than the linking site. Them asking you to remove the nofollow attribute suggests they don't know what they're talking about as it will have a negative effect on their organic search engine performance if found and could get them deindexed. From your point of view as the linking site I would ensure that you still to best practice as it's only a matter of time before the spot light is turned onto the linking sites that do not conform with best practice. It is certainly not allowed and if found you are likely to see the new "Unnatural links from your site" warning appear in Webmaster Tools; a sign of a manual penalty. http://www.ben-norman.co.uk/blog/seo/when-and-why-to-use-the-nofollow-attribute/

If there is a server-side redirect between the paid link and your site don't worry about NOFOLLOW tags. This would be the case if your link is displayed via 3rd party ad server. If the link points straight to your site use a NOFOLLOW tag. If you're unsure run a Live HTTP Header report to see if there are any server-side redirects between the link page and the destination URL (your site) https://addons.mozilla.org/en-US/firefox/addon/3829/ Good luck!

If the webhosting company is paying you $500, they definitely want it to be dofollow, otherwise there won't be a price tag. If you indeed placed a dofollow link, make sure you review their site once in a while as a dofollow link means you are 'voting' highly on it. I wrote an article about keeping a record of who you are linking to: http://seopressor.com/insider/careful-link-keep-record/ Daniel

This is perfectly Fine for you. If you sell the space the for links. You can add them in blog roll or as trusted partners sites. This is same as you are owner of house and giving some space to someone and in exchange of money. The Matt Cutts blog post on who is purchasing the link not for who is selling the links. Just check at this site http://www.seroundtable.com/ which is selling space for links on major competitive keywords like SEO & Search Engine Optimization . Rest is your decision.