tl;dr: Yes your guess is correct, local users work with SSO, there is no need for AD users.
long version:
I would still install it as a domain user, if the auto discovery fails don't bother about it. As long as you use Simple Install (I would rather advise you to install the components one after another) or install SSO in Basic Mode you will be able to use your local users.
If you ever decide to need AD users they can always be added at any later stage.
If installing SSO without using Simple Install be sure to install in Basic Mode as Multisite and HA Mode do not support local system users.