I agree that it is very difficult to asses every aspect of a school and validate it. The commercial styles such as TKD and Karate have made it much easier to research their history and understand the lineage that the art has been passed through. Home schools do not always have these resources available to the students, and therefore trust plays a major role.
One thing i do believe whole heartedly is that spirit does not lie. Use your intuition and follow it. Look at the students past and present, to decide if the art has actual application. If it has little application then it is a good bet that the "master" is pulling your leg. If the students are well trained, they will disciplined and refined in there actions martial or not. You should see intuition being employed.
I believe that a legitimate school will speak for itself. Mcdojos have an artificial feel to them. Credentials can be faked and rankings can be bought. Look toward the spiritual teachings of the school. Martial arts is a path of self realization and spiritual awakening.