Don't pay for something you can already find on the internet or in your user's manual. 

This information came from here: http://www.bimmerfest.com/forums/showthread.php?t=154721.  Timothy Kruger is the author of this article.  I felt the need to post this because of auctions charging for similar material.

** This info applys to E39's that use the dimond key **

1) Full Remote Key (aka Diamond Shaped Key w/build in Remote)



2) Full Service Key (aka Key with orange light on it)



3) Valet Key (aka. Grey colored key)



4) Plastic key (aka. Small plastic key for your wallet)



**************
*** RFID Chip ***
**************

Every E39 key (even the little plastic one) has an RFID chip in it which is coded to your car and acts as a starter disabler. When a key is inserted and turned on the car verifies this chip prior to starting the car. If the chip is not recognized by the car then it will not allow the engine to turn over. This technology has been around for many years and is used by almost all car manufactures now.

A common misconception is that the chip in the key talks to the car through the metal part of the key, however this is not the case. When you insert your key into the ignition the RFID chip sends a signal wirelessly to a receiver located in the ring around the ignition switch. Everything is done wirelessly.

RFID is the same technology used in the badges or touch-less cards issued to gain access to offices, gyms etc.

The RFID chip in your key can only be coded to your car by a BMW dealership and in most cases they will only code keys you
buy from them. In other words if you buy one of those un-cut keys from eBay the dealer will not cut it or code it for you
(they want to over-charge you!).

*****************
*** Keyless Entry ***
*****************

Most if not all E39's have this option and in most cases it includes the factory Alarm system as well. The keyless entry part of your key is completely separate from the RFID chip described above. Any Diamond shaped key can be programmed to work with the keyless entry function of your E39. Obviously the key part and RFID will not fit your car but the remote part can be used to gain access to the vehicle.

Why is this important?

The dealer charges $125-$200 for a full remote key (diamond key) plus programming, this really bothered me since the parts guy at my local dealer accidently showed me the cost of these keys and it's around $60-$75. Like all BMW parts the dealer marks them up about 50-100%.

When I bought my used E39 it only came with 1 key; the full remote diamond key. I wanted to get an extra key in case I locked myself out. I was not going to pay $180 for the full remote key so the parts guy offered me the Full Service key for $45. Since it was a spare I figured that was the best option.

********************************
*** The cheap keyless entry solution ***
********************************

I then began looking around the forums to see about these eBay used keys and what could be done with them. Here's what I came up with.

Buy a used diamond key on eBay (does not matter which model BMW it came from, all diamond keys will work), should run you $15 or less if you’re lucky. When you receive the key, cut off the actual key part using a Dremel or grinding wheel, (you can use 40 or 60 grit sand paper too but it will take a while). Program the keyless entry part to your car using the following steps.

1. Unlock car w/your exsisting key.
2. Get in car and close all doors.
3. Insert your exsisting key into the ignition and turn to the ON position then turn off.
4. Remove the key from the ignition
5. Hold down the Unlock button and press the Lock button 3 times then release the Unlock button (must be done within 30 seconds)
6. Repeat step 5 for each remote you have (must be done within 30 seconds)

Put this on the key ring with your Full Service key from the dealer and you have yourself a keyless entry setup for under $100.