I've been searching different sites but I don't seem to find the answer anywhere (about my '98 M3).

My brake pedal feels soft on first application. If I release pressure and apply it again, the second time around, the brake is firm as it can be. If I keep pumping it remains firm.

I have bled the system multiple times, going through almost 4 liters of brake fluid. One shop did the two-person technique and another shop used a pressure bleeder. I even had them rebuilt the calipers (stock set up). But the problem persists. Again, it happens only during the first brake application. The second time around stays firm.

The process repeats everytime. No vibration whatsoever. Pads and rotors are OK. The braking performance is still good (even at the track). The shop recommended changing the master cylinder. Any Ideas?

I know this sounds obvious but your car is an auto or manual? I assume they bleed the system to include the clutch slave cylinder?
Lastly if the car was pressure bleed the pressure was 26 psi so that the ABS would also be bleed.
If these were done and no resolution then I am stumped too.
Maybe someone that has had this problem can step forward and help. I always thought that when a master cylinder fails or begins too that you slowly loose pressure holding your foot on the brake like a failing wheel cylinder would do.

Fun2drive has 2 good points.

1) Bleed system, drive car and activate ABS several times by stopping on gravel or something, then bleed again. That is the recommended procedure for brake bleeding in ABS cars. Also, I have heard that special high pressure equipment is needed for cars with Traction control, but I don't have TC and I have not confirmed that this is true.

2) You have a bad master cylinder. The way you describe the symptoms, that is the more likely problem here.

Thank you guys for your inputs. My car is a 5-speed by the way, and since it is a 98, has ABS and TC.

I don't really know how much pressure was used when "pressure" bleeding the system.

I don't know if the "clutch slave cylinder" was bled too (how do you do that?

And mjfeeney:

You seem to be quite sure it's the master cylinder. So I shouldn't worry about trying to get "potential air in the ABS system" out? I read you have to lock up all 4 wheels to make it work or take it to the dealer to make "the ABS systems cycle" while bleeding it.

So my question now would be: Should I take it to the dealer to try an full ABS bleed, or just replace the Master Cylinder ($300+ plus labor)?

This sounds just like a master cylinder problem. Bleeding the clutch will have nothing to do with the brakes. They both use the same reservoir but nothing else. This is not a hard DIY fix. Check out Bentley--step-by-step instructions. You probably will need a "line" wrench so as to not round-off the soft flange nuts.