Every season we watch a handful of good things fail to sell for the same reason: the reserve was set where the seller hoped rather than where the market was.
What a reserve is
A confidential minimum, agreed between the house and the seller, below which the lot will not be sold. It may never exceed the low estimate — that is not a courtesy, it is a rule, and a house that lets a seller set a reserve above the low estimate is publishing an estimate it does not believe.
The auctioneer may open the bidding below the reserve and may bid upward on the seller's behalf until just short of it, which is what is happening when the auctioneer appears to be taking bids from the chandelier. They may not bid at or above the reserve, and they may not take a bid from the seller.
Where to set it
Our advice, almost always, is at or a little below the low estimate. A reserve at the low estimate protects you against a bad afternoon. A reserve above it does not protect you against anything; it simply guarantees that a room which values the lot at the low estimate goes home empty-handed and so do you.
The seller who insists on a high reserve is usually protecting against a fear rather than a risk: the fear of the object going cheaply in front of people. That fear is real. It is also, on the numbers, expensive.
What passing actually costs
Nothing, in commission — there is no seller's commission on an unsold lot. What it costs is freshness. A lot that has been offered and passed carries that fact with it; the trade notices, and re-offering it too soon at the same estimate rarely works.
The department will normally approach the underbidder within days. A passed lot sold privately afterwards, at or near the underbid, is a common and perfectly respectable outcome, and it is why we publish the passed lots as well as the sold ones. A lot that passes has not failed. It has not yet met its price.