Has anybody heard that google is going to be penalizing for linking with other real estate sites? Also, I've heard they are going to be penalizing for excessive numbers of link exchanges? Any validity to this?

They have penalized some Realtor sites in the past as a warning - see this blog post for more info. Link exchanges are usually just ignored by Google whether excessive or not but the sites are not usually penalized. So link exchanges for the most part are just a colossal waste of time in the end - especially if you exchange with an aggressive trader (which is just about anyone who emails you for a link exchange). Having said that, link exchanges done with carefully chosen partners with links not placed in obvious "link directories" - and in moderation - do still work.

Penalties do eventually occur however when the link exchanges appear to be organized - when they are set up by your template provider for example.

http://www.google.com/support/webmasters/bin/answer.py?answer=66356&query=link+exchange&topic=&type

Excessive link exchanges is a violation of Google's guidelines and can result in ranking penalties. The thing to remember though is the word "excessive": reciprocal linking happens naturally, and newbie webmasters often crosslink their network of sites, so Google is extremely forgiving as long as you do things in moderation.

The key is to exchange links in a way that doesn't fit a pattern, and to marginalize reciprocal links in your link profile. A majority of your backlinks should not be link exchanges or even one-way from pages that openly exchange links.

Reciprocal linking can be very benficial to your site! As TheRooster said though you do not want excess links. Select a few quality sites to exchange with and keep it low key. In other words having a links page is an obvious trade.
A good example is to trade with a local mortgage broker. Slip the link to that broker into your finance pages and he can do the same on his end when he discusses real estate. It is a natural link exchange that you both will benefit from in the search engines as well as in traffic.

Do it naturally and do exchange links to relevant sites only.

The truth of the matter is that no one outside of Google knows what exactly will penalize you. There are some obvious ones, spamming, stuffing, and excessive blatant link exchanges.

I have seen many sites with huge list of link exchange partners and they still rank well. So maybe there is a filter like this or they don't penalize as much as people lead you to believe. I would try and stay away from link exchanges though.

Trade posts, distribute your articles, socially bookmark your articles, and promote them to their target market on social media sites. Make sure you are in the good, older directories. Make sure your linking to each page/article and not just to the main site URL. Relevancy on page-per-page links is key! Hopefully your article is good enough that others will see your bookmarks/posts and will pick them up, also utilize the article directories and reuse the article there too, including your bio with your two links.

Not sure "reciprocal linking" has much clout - as Google knows webmasters are trying to manipulate their rankings by reciprocal links. The same for 3 way links - google can detect.

Sorry but links pages do nothing for you!

I have to agree with this, I never have tried doing link exchange. I prefer natural linking or one way links, If they like what I have then link to me, if they don't i'm not forcing them :-)

Link exchange with the right sites and at a moderation will be good for SEO. Don't try to black hat your way to the top.

Reciprocal linking can be very benificial to your site! As TheRooster said though you do not want excess links. Select a few quality sites to exchange with and keep it low key. In other words having a links page is an obvious trade.
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I've been told that if you're linking to/from a site with the same page rank, then it's pretty much a wash as far as Google goes. It's hard to get a highly ranked site to link to you unless you post some valuable content that one of those sites wants to showcase.

Whoever told you that is taking the narrow point of view that-"since the Google Page Rank received is equal to the Page Rank given an exchange is of no benefit."

The Page Rank exchange may be wash but only if both links are placed on the main entry page of the website. Your linking to someone from an interior page on your site does not diminish your main entry page's PR(what most people think of as their site's PR). The PR you receive from their link benefits the page being linked to - usually the main entry page.

In any event, Page Rank is only one reason why links may be of value. Just because you may not gain an "advantage" in PR in the exchange doesn't mean that it is not beneficial.

There is great value in the link text used in the link and especially so when the page linking to you has Page Rank regardless of any Page Rank you may be giving in return.

This is lost on a lot of people. Most think the only reason to get a link is for juice but anchor text has a value right up there with juice.

I don't exchange links but when I am shopping for links all I care about is if I can create the anchor text and is the page cached by g. PR is a bonus. Anchor text is king.

I agree. For me, as long as the actual page my link is to be on is listed in Google and the link on the page can actually be indexed I consider the exchange worth it. If the page has Page Rank it is like getting 13 doughnuts when buying a dozen - just a bonus.

For those that want more information there is an extensive multi-page thread on How to tell if a link exchange is worth it . Just to show how this information has been known for a long time - the thread dates back from 2003. You would think that all of the myths and misinformation about linking out there would have dissipated by now but I guess new "gurus" just keep misinforming just like the old ones did...