The agent property retrieval code is somewhat bizarre. If you want your agent to run in "local mode", it still contacts AM to retrieve its config. The very first thing it does is to check whether it truly is local. If so, it short-circuits the code and doesn't process any of the properties it has just received. This leaves the local properties intact.
What the code should do is to check the property (recovered from its local config files) and if it truly is set to "local" then not contact AM at all. This is what the C Agent does.
Additionally, the property com.sun.identity.agents.config.repository.location should be defined by default as "centralized" in the property files during installation. In this way we will preserve the current behaviour.
The upshot of this is that setting the repository location property to "local" would mean just that - don't contact AM for the config. If customers want to return to "centralized" mode, they would have to remove the definition of the property (which would be centralized by default) from their local files.
This change would need to be documented.