Sitemap issues and verify at root problems

I have a real estate website with Homes.com, and I had been trying to
submit my sitemap which was html based and in a subdirectory with
google for month which is how homes.com does theirs and got errors for
a long time. I am new to this and learning as I go, so I have been
reading the blog and discussions here and read I needed to do an xml
site map. So I went to www.auditmypc.com and did an xml sitemap and put
that in the subdirectory
(http://www.mywebsite.com/files/525119/site-map.xml)
which is the only available option for me, after many invalid date
errors, I took all modified dates out and got it to read the entire
sitemap without errors. Because Homes.com doesn't allow me to put a
verify file at the root, the stats aren't available to me. I want to
know if the website will be penalized for not having modify dates, I
have content that changes if not daily, weekly.
Also, how do small companies such as ours compete against big business
sites in our area. In all other search engines our website comes up #1
organically in a search for our area, but in google I can't even be
found. Thankfully I do PPC just to be in the google game, but there
are big websites like Home Gain and Bob Villa that come up that have no
real content for our area and are just generic. Our PR is 2 and I have
been building the website since May, so I have no idea if that is how
long it takes to move up the google food chain and I just need to keep
slogging along or are there issues I need to address to Homes.com so we
can be more accepted by Google?