A website that has been SEO optimized and has adequate inbound links from quality sources and plenty of quality content can still languish for months with page ranks. There could be many reasons for this, some can be fixed, and others may be just something that time will correct. However, it is important that the reasons be found in order to know if action should be taken.
Websites take time to mature, and a new website will require a period to get out of the "sandbox" (a lower rank accorded to brand new websites). This is something that nothing but waiting will cure. However there can be other things hindering the website and if your SEO efforts seem to be stalled it is important to be sure none of these are affecting it.
Over optimization and keyword stuffing can also hold a website back and the best way to decide if this is a factor is to check the keyword density on the website and correct any stuffing.
One of the other factors and the focus of this discussion is that of the bad neighborhood syndrome. Inbound links are fine; in fact, they are needed to properly SEO a site and get page rank. However, quality must be emphasized and if you are linking to a number of websites, which are considered by the search engines to be "bad neighborhoods" you, are in effect saying, "We endorse them" and that can lower your ranking.
You Don't Want To Live In A Bad Neighborhood. Don't Link To One Either!
The web is aptly named, as it is a complex interlinked set of lines and nodes, which are as intricate as any spider's web. Inbound links are very attractive but outbound links from a website are natural and every site should have some.
If a number of bad neighborhood sites link to a website with no link in return the impact is not noticeable since in the search engine's eyes a site owner has no control over who links to them. However, outbound links to bad neighborhoods are in the search engine's eyes an endorsement of the site and their tactics. This can cause a site to be penalized even if they are not using questionable tactics or spam or use questionable tactics.
This is logical from the search engine perspective since they want to provide quality results for their users and sites, which use unethical tactics to get better search engine rankings, will reduce the quality of the search results. Linking to those sites is equivalent to endorsing those tactics.
How Good Neighborhoods Go Bad
Since the bad neighborhood effect is reality and it can be detrimental to your website it is also important to understand how a site becomes labeled "bad". Obviously black hat SEO techniques that attempt to inflate a site's page rank artificially will get a website labeled as a "bad neighborhood" with questionable content. Link farms are also considered by search engines as "bad neighborhoods". Link farms are generally sites that exist only to display and often sell links. Search engines change algorithms all the time and just because a site has not been labeled a link farm yet, does not mean it will not be if it only contains links and no content or value.
How to Tell the Good Links from the Bad Links?
That is a good question as a site may be fine in the SERPS one day but caught the next day using questionable tactics, sending out viruses or labeled as a link farm. The primary way to determine a bad neighborhood is to carefully look over the sites you chose to link to. If there is little content on the site but 100s of links, this could be a sign. Another means is to check to be sure that the site you link to is in the search engines. Sites labeled bad neighborhoods will show no search engine results when their domain name is typed in. One quick way to check that a site you link to is not banned is to type in "site:thatdomain.com" substituting thatdomain.com for the address of the website. If you see, no pages listed in the search engine from that site you will probably want to pull your links to them.
If linking to bad neighborhoods is pulling down your search engine results, pulling those links can help restore your site to the search engine's good graces. However, in this case the best practice is to check the site links and the neighborhood out before linking to them rather than risking the search engines displeasure.