The only thing I know for sure about SEO is that there are no absolutes. If some people make reciprocal linking work, I think that's fine. But, at this point, I think it's something that should be done by someone with a track record of making it work with no repercussions.
Prior to the Big Daddy Google update that started at the end of 2005, reciprocal linking was a great tool for everyone - professional and novice alike. After the Big Daddy update started taking effect, panic ensued. There were many websites that either got banned, or dropped off the Google radar screen. And, these were sites run by professional SEO folks, as well as agents who spent a lot of time on SEO. They were getting quality links, no link farms, weren't using Black Hat techniques or participating in closed-loop reciprocal linking.
I started warning clients off reciprocal linking and In June of 2006, I wrote blog posts explaining the situation and suggesting that other types of obtaining incoming links should be pursued. And, there are a lot of other ways to get quality incoming links.
My main site had a reciprocal linking directory, too. Thankfully, the site was never punished for it, but like Malcolm, I eventually got rid of the directory, too.
Here's another set of experts' feedback on the topic from the SEOmoz website. The experts who participated in the evaluation of Google ranking factors were fairly well in agreement that if you wouldn't want to sit in front of Matt Cutts and explain how your "relocation guide" is helpful to your clients and not just a way to increase page rank, you shouldn't be doing it.
There are also several remarks that say this approach can work fine - until you get caught.
I'm not disputing that some professionals can manage reciprocal linking. I'm not convinced, but if the proof is there, I can't dispute it.
But, for individual agents who aren't SEO experts, I'd recommend sticking to using strategies for obtaining incoming links that don't involve reciprocal or three-way linking.
Kathleen
www.BuildRealEstateResults.com