The main red flags are guaranteed leads or costs per lead before the agency knows your market, accounts held in the agency’s name, ad spend paid through the agency with a markup, long lock-in contracts, vague monthly work, and reports that show clicks and impressions but not enquiries.
Be wary of a proposal that accepts any budget without question. A good agency will tell you if your budget is too small to produce useful data.
Watch for pressure to raise spend before conversion tracking is proven. Until calls and forms are tracked properly, more spend just buys more clicks you cannot judge.
This is one part of a bigger picture. How to choose a Google Ads agency in Australia covers fees, ad spend, account ownership, proposals and timelines in one place.