If your initial drop is from Common - Epic, re-roll increases the rarity of your initial drop by 1 up (if the lootable has it), otherwise will retain.
If your initial drop is from Legendary, Mythic, Vanity, Spirit, Set, re-roll would roll again throughout the lootable for a chance for better loot. If re-roll is better, then it upgrades, otherwise will retain.
If your initial drop is Arcane or Heroic, re-roll is neglected, you get your initial roll.
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