Some authors budget very unrealistically, perhaps just a couple hundred dollars. (I’m not saying this is necessarily true in your case, but I have encountered it.) In such cases, I find myself wondering whom they are imagining should bridge the gap between what they are comfortable paying and what the editor needs to earn in order to pay expenses and support him- or herself.
It’s difficult to answer this question without first addressing what an editor actually does. Editors can review the content of your writing (characterization, pacing, plot, etc.), which is often referred to as content editing; the form of your writing (the grammar, the punctuation, etc.), which is often referred to as copyediting; or both. (By the way, proofreading is indispensable, but it’s the final step of checking for typos and other glitches once the book is ready for print—any writer who thinks that proofreading is editing is in grave danger of getting ripped off.)
Not that I’m not looking forward to seeing the author’s work. I am. Seriously, I am! Book editing, despite the sticker shock first-time authors often get when they hear the estimate, is not a profession anyone enters in hopes of getting rich. I truly love helping a writer make his or her work the best it can be, and I’m always eager to get started. But I realize the task of writing takes time, usually more time than the author (even many an experienced author) expects.
Freelance editors normally do not double as literary agents. Not only is it not our area of expertise, but it can actually lead to ethical quandaries. There have, unfortunately, been cases of literary agents saying that potential clients’ work “has potential” but needs to be edited (by them or their employee), for an exorbidant fee. It would also be possible for editors to give the impression that they are guaranteeing publication of a project, when that is something no one but a publisher can do. Many professional organizations forbid their members to combine these two roles, to avoid a possible conflict of interest.
Every author must decide what is important to him or her in an editor, but in these days of electronic communication, honestly I do not think it is important to seek a local editor unless your book is specifically related to something of local interest. Even in that case, you may benefit from the perspective of someone who does not have all the local knowledge it can be easy to presume, so that you can prepare your book for a wider audience.
An edit requires a substantial investment, many times greater than the cost of a book. Editors who spent years as assistants, learning the craft of editing and acquiring the knowledge of how to guide authors, are a safer choice. Their track record speaks for itself; editors at this level have bestsellers and award winners in both the traditional and the self-publishing space.
I usually ask for a 10-20 page sample – one page is a bit scant for a really accurate estimate. I’ll do an editing sample, too, but how long I’m willing to make it depends on the proposed length of the piece I’ll be editing. As for the “hidden message” strategy, if I saw something like that, I’d suspect the prospective client was fearful and suspicious and I’d probably run the other way. I willingly provide testimonials, references, and links to published work, so tricks aren’t necessary. It’s important to me to build a professional relationship of mutual trust with my clients, backed up, of course, by a contract that protects us both. I don’t think I’d like to work with a client who plays “gotcha!” Lots of good suggestions in this article, though.

Specialty – Do you want a copy editor who will strictly follow the rules in the Chicago Manual of Style? Do you want someone whose specialty is line editing and can write smooth, clear, and creative sentences? Are you looking for someone to make sure you don’t have any glaring grammar or spelling mistakes so as to avoid the brutal grammar police reviews? Or do you want someone to look at the overall structure or plot of your book?

A good editor is worth their weight in gold. Myself, I’m a frugal person, so I do my own ferocious self editing. I once belonged to a writers group, and the material the members submitted for critique made me cringe. Their story ideas were good, but were full of unnecessary adjectives, numerous misspelled words, run on sentences, and they had their characters grunting, snorting, huffing and puffing. I would spend time editing and when I gave back the material, the people were offended. I figured these people were looking for praise and not the truth.
Line editing is an intensive structural edit that focuses on the finer aspects of language—the flow of ideas, transition elements, tone, and style. Your line editor will take a critical look at your manuscript’s writing flow, language usage, character development, and more, and make suggestions that ensure that you’re communicating your story effectively while maintaining your voice.

That’s a great point about other disciplines. Why should writing require some outside arbiter? Is it because these other disciplines consist in crafts that require significant training, whereas anyone who’s literate can start writing a book at any time (and therefore, the threshold for entering the medium is much lower)? I do hope you’re right about learning self-editing skills. I actually just made a YouTube video about how to self-edit:

2. Copyeditors aren’t the last line of defense when it comes to a book’s mistakes. Formatting, which is done after an editor has done their job, can lead to unintended errors being introduced into the text. That’s why it’s important to hire proofreaders to comb through edited text *after* the book has been formatted for print or digital. Proofreaders are your last line of defense—but they’re human too.