I would use the top url, but url alone doesnt make alot of difference

Top is surely better!

Right, and places like Zillow might have URLs like the 2nd but they are forced to list millions of listings across the globe.

If you have a regional site (not a ton of listing cities) on a good CMS then my vote is #1 as well but it is really preferential. Google wouldn't favor one of the other so think about what works best for navigation within your site and what would people be more likely to click on when they see it in the Google Search Engine Results.

According to google guidelines the url structure should be static.